MNI POLICY: BOJ Wakatabe: Tax Hike May May Weigh On Econ

--Wakatabe: Still Downside Risks That Need Attention

     AOMORI, Japan (MNI) - Bank of Japan Deputy Governor Masazumi Wakatabe

warned Thursday the consumption tax hike planned in October may push economic

activity and prices lower.

     Speaking to business leaders in Aomori City, northern Japan, Wakatabe also

noted that further attention must be paid to the "downside risks to the main

scenario".

     Wakatabe said the BOJ still had ammunition, citing QQE, a negative interest

rate policy, and forward guidance as future policy tools that the BOJ will take.

     However, he doesn't see imminent additional easing, saying, "It is

appropriate to maintain the current policy framework in which it clearly commits

to the price stability target of 2% and pursue the monetary easing to achieve

the target."

     He also warned that persistent or prolonged trade friction will add to the

downward pressure on the global economy, not just through direct effects from

higher tariffs, but also through deteriorating sentiment in the financial

markets and slower corporate capex spending.

      "The global economic growth rate is projected to increase somewhat from

the  second half of 2019 but this scenario entails substantial uncertainties,"

he said.

     At the latest policy meeting on June 19-20, the BOJ left policy unchanged,

restating the forward guidance for policy rates, saying it will maintain the

easy policy "at least through around spring 2020", seeing Japan's economy

continuing to expand moderately despite growing downside risks.

     The next policy-setting meeting is scheduled for July 29-30 when the board

updates its quarterly Outlook Report, including economic growth and inflation

rate forecasts until fiscal 2021.

     Other key points from Wakatabe's speech:

     --Through Japan's battle against deflation and the U.S. and European

economies following the Global Financial Crisis, policy tools such as QQE,

negative interest rates and forward guidance have been added to the central

banks' "arsenal". "They will be used going forward depending on the situation." 

     --"If the slowdown in overseas economies becomes prolonged, downward

pressure on domestic demand may strengthen gradually. In addition, there remains

a risk that the scheduled consumption tax hike this October may push down

domestic demand and eventually economic activity and prices."

     --Wakatabe stuck to the 2% price target, saying, "Setting the target level

at 2% is a global standard; if we lowered the target, deflationary pressure

would be exerted through changes in people's expectations as well as in foreign

exchange rates and asset prices."

     --"Japan's economy has maintained its trend of moderate expansion, although

exports and industrial production have been affected by the slowdown in overseas

economies."

     --"The main scenario is that the economy is likely to continue expanding

moderately as a trend, with the growth rates of overseas economies rising

somewhat and domestic demand maintaining its firmness," he said.

--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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