MNI UPDATE: BOJ Funo: 2% CPI Goal To Help Stabilize FX

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     TOKYO (MNI) - Bank of Japan board member Yukitoshi Funo said Wednesday that

the central bank's effort to achieve its 2% inflation target, which it sees as a

global standard, should help stabilize foreign exchange rates.

     Funo also repeated that the BOJ must continue its monetary easing program.

     "Judging from the current economic, financial and price conditions, it is

vital for the BOJ to push ahead with aggressive easing under the current policy

framework," Funo said in a speech to business leaders in Miyazaki City,

southwestern Japan.

     The BOJ aims to achieve 2% inflation, not a lower target such as 1%,

because consumer price statistics have an upward bias compared to actual prices,

Funo said.

     In addition, a lower inflation target could adversely affect the currency

market, Funo warned. BOJ officials have said if the BOJ targets a 1% inflation

rate while other major central banks are trying to anchor inflation around 2%,

it could cause the yen to appreciate, hurting exporter profits and thus domestic

growth.

     "Major central banks are conducting monetary policy to achieve inflation

around 2%. Therefore, if the BOJ aims to achieve 2% inflation, it will

contribute to stabilizing foreign exchange rates in the longer term, and then

corporate activities," said Funo, a former Toyota Motor executive.

     When the time is right, the bank needs to guide nominal interest rates

higher in line with price rises so that it can cut interest rates in the future

when it needs to stimulate the economy, he said.

     At its latest policy meeting on Oct. 30-31, the BOJ board decided in an

8-to-1 vote to maintain its current monetary easing stance under the yield curve

control framework it adopted in September last year.

     In addition, recent weak price data prompted the board to lower its

projections for consumer prices in fiscal 2017 and 2018, but the BOJ stuck to

its latest timeframe that it can achieve its 2% inflation target "around fiscal

2019" ending in March 2020.

     Under the yield curve control framework, the BOJ is seeking to stabilize

the 10-year government bond yield, the benchmark for long-term borrowing costs,

at around zero percent and keep the overnight interest rate at -0.1%.

     Funo also said the momentum toward achieving the 2% price stability target

has been firmly maintained.

     "The year-on-year change in the consumer price index (excluding fresh food)

is expected to rise toward 2% but Japan is still far from achieving the price

target," he said.

     If a rise in inflation expectations becomes clear, it would entice firms to

raise base wages, leading a gradual pickup inn the pace of wage hikes for

regular workers, he said.

     At the same time, the BOJ must pay attention to the risk of companies

remaining cautious about wage hikes, he added.

     Medium- to long-term inflation expectations are expected to rise because

the BOJ is committed to achieving the 2% price target by continue its easing

program, he said.

     "But depending on developments in corporate price-setting behavior, we

might see some goods that are not sensitive to [an improvement in] the output

gap. We must also pay attention to the possibility of a delay in the rise in

inflation expectations," Funo said.

     To achieve the BOJ's inflation target, it is important to increase Japan's

growth potential, which is estimated by the BOJ to be about 0.8%, he added.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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