MNI POLICY: BOJ Suzuki - Must Manage Policy More Carefully

     TOKYO (MNI) - The Bank of Japan must manage monetary policy more carefully

than before as further easing could increase side-effects, board member Hitoshi

Suzuki said Thursday.

     "We have to pay attention to the heightened downside risks to the global

economy," Suzuki said, adding that if volatility in global financial markets

increased amid the downside risk to the global economy, it would increase

downward pressure on the global economy.

     Speaking to business leaders in Kumamoto City, Suzuki said the BOJ must

keep a careful watch on how downside global economic risks affects firms' and

households' sentiment.

     However, Suzuki, a former commercial banker who joined the nine-member

policy board in July 2017, didn't elaborate on how and when the BOJ would

consider taking additional easy policy.

     At the July 29-30 meeting, the BOJ backed away from any pre-emptive easing

measures, leaving policy unchanged, as the economy continues to expand

moderately, underpinned by solid domestic demand, although it admitted to

greater downside risks to both activity and prices.

     The BOJ warned, "In particular, in a situation where downside risks to

economic activity and prices, mainly regarding developments in overseas

economies, are significant."

     The bank added, "The bank will not hesitate to take additional easing

measures if there is a greater possibility that the momentum toward achieving

the price stability target will be lost."

     Other key points from Suzuki's speech:

     --It is important for the BOJ to maintain the current easy policy to

achieve the price stability target but the BOJ needs to pay attention to both

favorable effects and side-effects.

     --Suzuki cited three side-effects; financial institutions' risk-taking

attitude, low rates could squeeze banks' profits and lower banks' capital, which

in turn will reduce banks' loans, known as "reversal rates", banks could lower

deposits rate to negative, which will have negative impact on the economy

through a worsening of consumer sentiment.

     --The BOJ needs to maintain the stability of the financial system not only

to increase the transmission mechanism of monetary policy but also to maintain

the intermediation of financial institutions.

     --The BOJ will manage monetary policy appropriately to maintain momentum

toward hitting its price stability target, while keeping a close eye the risks.

     --Private consumption is increasingly moderately but the BOJ needs to pay

attention to development of private consumption before and after the consumption

tax hike to 10% from 8% on Oct. 1.

--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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