MNI REVIEW: BOJ On Hold; Cuts Output Outlook; Downside Risks

     TOKYO (MNI) - The Bank of Japan left monetary policy unchanged Thursday, as

widely expected, but remains vigilant against large downside risks to both

economic activity and prices.

     However in the wake of the Board's 7-to-2 vote, the central bank repeated

that "downside risks concerning overseas economies seem to remain significant,

and it also is necessary to pay close attention to their impact on firms' and

households' sentiment in Japan."

     The BOJ also maintained forward guidance for policy rates, saying "the BOJ

expects short- and long-term interest rates to remain at their present or lower

levels as long as it is necessary to pay close attention to the possibility that

the momentum toward achieving the price stability target will be lost."

     Despite sustained uncertainties over the global economy, the BOJ maintained

its overall economic assessment, as already-released economic data, including

the recent Tankan survey, didn't prompt a change in the baseline scenario.

     "Japan's economy has been on a moderate expanding trend, with a virtuous

cycle from income to spending operating, although exports and production have

been affected by the slowdown in overseas economies," the BOJ said in a

statement accompanying the decision.

     As for the near-term outlook, the BOJ again said "Japan's economy is likely

to continue on an expanding trend, despite being affected by the slowdown in

overseas economies."

     The BOJ lowered its assessment of industrial production from the previous

meeting following recent weak data (-4.5% on month in October).

     "Industrial production has declined recently, due partly to the effects of

natural disasters," the BOJ said.

     The previous assessment was "industrial production has been more or less

flat."

     The assessment of other economic components was largely left unchanged from

the previous view made in October.

     Other key points from the BOJ board meeting:

     --Under the yield curve control framework adopted in September 2016, the

BOJ will keep the target for the overnight interest rate at -0.1%.

     --The BOJ will purchase JGBs so that 10-year yields will remain at around

zero percent. While doing so, the yields may move upward and downward to some

extent, mainly depending on developments in economic activity and prices."

     -- Officially, the BOJ will maintain the annual pace of its JGB purchases

at around Y80 trillion, although the pace has declined sharply as the

accumulated effects of keeping rates down with asset purchases have intensified.

The bank noted it will conduct the purchases "in a flexible manner."

     --As for the risk factors, the BOJ said, "Risks to the outlook including

the following; the consequences of protectionist moves and their effects;

developments in emerging and commodity-exporting economies such as China;

developments in global adjustments in IT-related goods; developments in the

United Kingdom's exit from the European Union and their effects geopolitical

risks and developments in global financial markets under these circumstances."

     --The scale of asset purchases, such as exchange-traded funds (ETFs), Japan

real estate investment trusts (J-REIT), commercial paper and corporate bonds was

unchanged at Y6 trillion, Y90 billion, Y2.2 trillion and Y3.2 trillion,

respectively.

--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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