MNI STATE OF PLAY: BOJ Faces Oct Inflation Outlook Downgrade

--Further Easing Measures Unlikely, Momentum To Target Is Key

By Hiroshi Inoue

     TOKYO (MNI) - The Bank of Japan board faces the prospect of downgrading

their inflation rate outlook and examining economic downside risks at the

October meeting, although policy will likely remain unchanged.

     The next meeting, scheduled for Oct. 30-31, will see the board update its

medium-term outlook for economic growth and inflation, with the median inflation

forecast expected to be revised down from +1.1% seen in July.

     However, it is unlikely the expected downward revision of the inflation

rate will trigger additional easy policy, with the focus on how the board

assesses the current momentum toward achieving the 2% inflation target.

     --SEPTEMBER ASSESSMENT UNCHANGED

     The BOJ board, as widely expected, decided Wednesday in a 7-to-2 vote to

maintain its current monetary easing stance under the yield curve control

framework it adopted in September 2016, vowing to keep very low interest rates

"for an extended period."

     The board maintained its economic assessment amid growing uncertainties

over global demand caused by the U.S.-China trade dispute.

     "Japan's economy is expanding moderately, with a virtuous cycle from income

to spending operating, it said, adding that the economy "is likely to continue

to be a moderate expansion."

     "Overseas economies have continued to grow firmly on the whole," the BOJ

added.

     --TRADE SENTIMENT CONCERNS

     BOJ economists think the uncertainties over global growth are increasing in

the wake of the trade friction but Japan's exports haven't yet been seriously

hit by the trade friction.

     BOJ Governor Haruhiko Kuroda said Wednesday that the direct impact of trade

disputes on global growth is estimated by the IMF and other international

organizations as "not so large," but the indirect impact -- a worsening of

business and household sentiment -- could hurt global and Japanese economies.

     "If household and corporate sentiments are affected by trade disputes, they

would impede consumer spending and corporate capital investment, which then

would have a big impact on global trade. We have to pay attention to the risk,"

he said.

     --Q3 TRADE EYED

     BOJ economists are focused on September trade data due out on Oct. 18 and

the real export index for the third quarter to examine the underlying trend of

real exports.

     The BOJ's real export index calculated based on the Ministry of Finance

trade data Wednesday rose 2.1% on month in August for the second straight rise

following +0.3% in July, but the average for the July-August period fell 0.4%,

compared with the April-June quarter.

     The economists don't expect global demand to shrink drastically in the near

term, but they remain vigilant against the risks that exports and industrial

production will lose momentum, which will, in turn, prompt firms to delay the

implementation of capital investment.

     The BOJ Wednesday maintained the view that exports are expected to continue

their moderate upward trend on the back of the solid growth in overseas

economies.

--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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