MNI POLICY: BOJ Opinions: Must Mull Options On Slow Inflation

     TOKYO (MNI) - The Bank of Japan needs to strengthen monetary easing amid

growing expectations for looser policy in the U.S. and Europe, according to one

board member, the summary of opinions at the June 19-20 meeting released Friday

showed.

     Another member noted that central banks have been vigilant regarding the

global slowdown and heightening uncertainties over it, the key for the BOJ in

overcoming deflation is for it to maintain its stance of taking "some kind of

policy responses if some changes emerge in the baseline scenario of the outlook

for prices."

     That member also said, "All policy measures -- including adjustments in

short- and long-term interest rates, an acceleration in the pace of expansion in

the monetary base, and an increase in the amount of assets to be purchased --

should be deliberated when considering additional easing."

     However, the BOJ policy board was far from implementing additional easy

policy at the June meeting, voting 7-2 to leave it unchanged, with the consensus

seeing Japan's economy continuing to expand moderately despite growing downside

risks.

     The BOJ restated the forward guidance, saying it will maintain the easy

policy "at least through around spring 2020."

     Despite intensified trade tensions and increasing uncertainties over the

global economy, the BOJ maintained its overall economic assessment as recent

data hadn't altered the baseline outlook, with a "virtuous cycle from income to

operating".

     Other key points from the summary of opinions:

     --One member said, "While banks' profits have been deteriorating, lending

rates seem to be approaching the levels of the so-called reversal rates, which

reverse the effects of monetary easing and decrease the amount of bank loans. If

base rates for bank loans decline further, there could be a decline in the

amount of bank loans, which constitute an important transmission channel through

which the effects of monetary policy spread to the real economy."

     --Another member said there is a risk that providing financial institutions

with funds at negative interest rates will not lead to increased lending and a

concern that it will "bring about downward pressure on interest rates, depending

on developments in economic activity and financial conditions."

     --One member said, "The BOJ needs to constantly consider measures that

enhance the sustainability of monetary easing."

     --A different member noted the necessity of examining the impact declining

sentiment amongst households and companies on inflation expectations. "If there

is concern that such momentum will be lost, the BOJ should consider implementing

necessary policy measures appropriately."

     --One member said, "There is a low possibility that the output gap will

continue to widen within positive territory, and inflation expectations have

remained weak. Against this background, it cannot be judged that the inflation

rate will accelerate toward 2 percent."

     --"While upward pressure of a positive output gap on prices has been

maintained, a rise in inflation has been delayed, being offset by the

constraining effects on inflation due to a rise in productivity accompanying,

for example, firms' labor-saving investment."

     -- The summary noted that the ongoing impact of the trade dispute between

the U.S. and China had hampered any acceleration In Japan's inflation rate,

noting "there is still a long way to go to achieve the price stability target of

2 percent."

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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