MNI POLICY: BOJ Wakatabe: Worry Over Weak Price Impact On Econ

--Wakatabe: Vital BOJ Hits Its 2% Inflation Target

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

Wednesday voiced concern over the impact of weak price moves on Japan's economy,

saying the BOJ must achieve the 2% price target.

     "Price declines may bring about significant negative effects on the

economy, even if their pace is moderate or does not accelerate," Wakatabe told

business leaders in Niigata City.

     However, Wakatabe didn't see any imminent need for more easy policy now.

     Wakatabe, an advocate of the idea that monetary easing has no limits, said,

"The BOJ will encourage a rise in the inflation rate to the level that is

appropriate for the economy by continuing large-scale monetary easing with the

aim of achieving 2% inflation and thereby maintaining economic improvement for a

sufficiently long period."

     Other key points from Wakatabe's speech:

     --Japan's inflation rate is improving steadily but it has remained at

around 1%, and "thus we are only halfway to achieving 2% inflation." "In a case

where downward pressure is exerted on the economy again, it may revert to

deflation."

     --"In continuing with monetary easing, it is necessary to continuously

examine not only the effectiveness on inflation but also the impact on the

financial markets and system." "This is expected to enhance the sustainability

of the policy and consequently raise the certainty of achieving 2% inflation."

     --The BOJ's momentary policy doesn't target foreign exchange rates and

Japan aims at achieving the same inflation rate as many other economies,

including the U.S. and the Eurozone. That is likely to stabilize foreign

exchange rates from a long-term perspective, and thereby contribute to

establishing a business environment that enables firms to make decisions easily

and continue with their activities without added concerns.

     --The impact of the trade friction between the U.S. and China on economic

activity at home and abroad is likely to be limited. "However, if problems

become more complex and prolonged, downward pressure on the global economy could

heighten, not only through the gradual spread of the negative effects on trade,

but also deterioration in firms' fixed investment stance and cautiousness in

financial market sentiment."

     --Japan's inflation rate is likely to rise gradually as the economy

continues on an expanding trend. But "there are various risk factors to the

outlook for prices."

     "We cannot deny the possibility that actual wages and prices will not rise

easily, despite continued excess demand going forward." Even when wages and

price rise, "there is a possibility that such movements will be perceived as a

temporary phenomenon and people's inflation expectations will not rise,"

Wakatabe said.

     "Moreover, the scheduled consumption tax hike in October 2019 poses another

risk for economic activity and prices," he added.

--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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