MNI PREVIEW: BOJ Set To Stand Pat On Policy, Cut Infln Outlook

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan is set to keep policy unchanged on

Thursday, with the board saying domestic demand has been little impacted by the

slowdown in global trade and momentum towards hitting the price target remains

intact.

     However, the BOJ will trim its inflation projections for both this fiscal

year and next from the respective 1.0% and 1.3% made in July.

     Some board members remain open to further additional easing, as they remain

uncertain as to when the recovery in the global economy and Japan's exports will

kick in, although they still hope for a pick-up in Q1 2020. The BOJ's latest

quarterly Outlook report, also due Thursday, could give them the opportunity to

lay out their case.

     BOJ economists will inform board members that both the Tankan survey and

the feedback from the recent Branch Managers' meeting suggests the overseas

slowdown will continue to weigh on manufacturers, but domestic demand will

remain insulated from the worse impact.

     However, the BOJ expects a slowdown of some degree in Q4, as the October 1

consumption tax hike will have at least a temporary hit on consumer spending,

adding to weaker exports.

     As domestic demand holds up, BOJ officials still see capax in the

non-manufacturing sector staying firm, offering one of the few bright spots for

the economy. Government spending to support regions battered by the recent

typhoon will also offer some support for the economy in Q4'

     --POLICY OPTIONS

     If the BOJ does vote for additional easy policy, there are a few options

open, with deepening the negative short-term policy interest rate from -0.1%

seen as one effective tool, although the BOJ is paying attention to both

benefits and costs.

     The BOJ could consider amending the portion of the three-tier system of

excess reserves held by financial institutions at the bank, with rates varying

from +0.1%, zero and -0.1%.

     Increasing the portion of the basic balance for which a 0.1% interest rate

will be option if the BOJ deepens the short-term policy interest rate.

     Shifting the long-term policy interest rate further down the curve from the

current 10-year JGB rate also remains an option for the Board.

--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

[TOPICS: MMJBJ$,M$A$$$,M$J$$$,MT$$$$,MX$$$$]