MNI POLICY: BOJ Opinions: Large Risks; Prepare For Downturn

     TOKYO (MNI) - Bank of Japan board members are vigilant against the downside

risks to economic activity and prices, although the board consensus is to

maintain policy settings with the goal of achieving price stability targets.

     A summary of opinions from the last policy meeting, held on December 18-19,

shows that while the BOJ board let policy setting unchanged, the bank stands

ready to ease policy if economic conditions worsen.

     According to the minutes, one member said, "It may become necessary to

conduct further monetary easing this time as well, depending on the underlying

trend in consumption."

     Another member said, "In the current situation where risks are skewed to

the downside, the BOJ should continue to examine whether additional monetary

easing will be necessary and prepare for a possible economic downturn as one of

the risk scenarios."

     While the BOJ left monetary policy unchanged at the meeting, as widely

expected, the minutes show it remains vigilant to large downside risks to both

economic activity and prices.

     In the wake of the Board's 7-to-2 vote, the central bank repeated that

"downside risks concerning overseas economies seem to remain significant, and it

also is necessary to pay close attention to their impact on firms' and

households' sentiment in Japan."

     The BOJ also maintained forward guidance for policy rates, saying "the BOJ

expects short- and long-term interest rates to remain at their present or lower

levels as long as it is necessary to pay close attention to the possibility that

the momentum toward achieving the price stability target will be lost."

     Other key points from the summary of opinions:

     --One member said, "Heightened uncertainties remain in the environment

surrounding the global economy, and the BOJ has not moved out of the situation

where preconceptions about policy decisions are not acceptable."

     --A different member said, "The BOJ should consider its policy framework,

but the introduction of an inflation rage target, such as that proposed by the

International Monetary Fund, could weaken the BOJ's commitment to achieving the

price stability target."

     --Another member said, "Although market conditions have improved, business

sentiment has deteriorated and price developments have been weak in a situation

where risks to economic activity at home and abroad have remained high." It is

important to examine whether the propensity to consume will not decline due to

the sales tax hike.

     --A different member said, "It is important to sufficiently provide the

public with up-to-date information on the output gap and medium- to long-term

inflation expectations, which together compose the momentum toward achieving the

price stability target." 

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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