MNI REVIEW: BOJ Tweaks Guidance To Help Hit 2% Price Target

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan moved to strengthen forward guidance for

policy rates, extending the minimum time frame that 'extremely low' rates will

remain in place, as the side effects are seen as lower than other options

including deepening negative interest rates.

     Thursday's decision also reflects that the BOJ is getting near the limit of

its current effective tools. They could deepen the negative interest rate from

-0.1% and increase the scale of its purchases of Japanese government bonds, but

there would be greater costs, with increased accumulated side effects from the

easy policy.

     The BOJ kept monetary policy unchanged Thursday, as Japan's economy is

still "expanding moderately" despite persisting downside risks to both activity

and prices.

     The BOJ board also decided to expand the eligible collateral for the

provision of credit, taking account of financial institutions that are having

difficulty of gathering JGBs following the Bank's bond buying program.

     Strengthening the forward guidance also reflects that the officials in

charge of monetary policy are taking account of Deputy Governor Masazumi

Wakatabe who has said that the BOJ should boost easy policy if the momentum

toward the 2% price target is weakening.

     --SEE NO INFLATION PICK-UP

     The board's median forecast for inflation rate in fiscal 2021 ending on

March 31, 2022, -- the first release -- is +1.6%, indicating that the 2% price

stability target will not be achieved in a projection period -- prompting the

BOJ to tweak its forward guidance.

     The BOJ board has also said their aim is to achieve the 2% price target at

the possible earliest time.

     Whilst keeping the view that "inflation expectations have been more or less

unchanged", the BOJ board added that "momentum toward achieving the 2% price

target is maintained but it is not yet sufficiently firm."

     --GUIDANCE

     The BOJ tweaked its forward guidance for policy rates, saying, "the BOJ

intends to maintain the current extremely low levels of short- and long-term

interest rates for an extended period of time, at least through around spring

2020, taking into account uncertainties regarding economic activity and prices

including developments in overseas economies and the effects of the scheduled

consumption tax hike."

     It will also relax the terms and conditions for the Securities Lending

Facility (SLF), including reducing the minimum fee rate and abolishing the upper

limit on the amount of sales per issue.

--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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