MNI UPDATE: BOJ Opinions: More Easing Would Cause Side-Effects

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     TOKYO (MNI) - At their Oct. 30-31 meeting, many Bank of Japan board members

saw no need to reinforce already large-scale monetary easing, arguing that

resulting side-effects of additional accommodation would exceed the benefit, the

summary of opinions at the meeting released Thursday showed.

     "In terms of an impact on the markets and financial institutions, as well

as of the sustainability of the policy, additional easing measures would likely

bring about side effects that outweigh positive effects," one member said.

     Another member said that the momentum toward achieving the BOJ's 2%

inflation target has been maintained, and "thus is it important to adopt a

wait-and see stance for the time being until the price effects materialize under

the current framework."

     The same person also said, "If the BOJ takes an extreme measure only for

the purpose of hastening the achievement of the price stability target, side

effects such as an accumulation of financial imbalances and an impaired

functioning of financial intermediation could arise."

     On the other hand, there was an opinion calling for expanding the scope of

bond yield curve control.

     One member, believed to be Goushi Kataoka, said, "With a view to lowering

the interest rates with longer maturities, the BOJ should set 15-year JGB yields

as the operating target for the long-term interest rate instead of 10-year JGB

yields, and purchase JGBs so that 15-year JGB yields remain at less than 0.2%."

     That person also said, "Through this additional easing measure, the BOJ

would ensure the path toward improving the GDP gap, increasing inflation

expectations, and enhancing spillover effects to the CPI, thereby raising the

probability of achieving the price stability target early."

     However, many board members judged that the BOJ should maintain the current

easing stance as the momentum toward achieving the price target is being

maintained.

     At its October meeting, 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.

     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%.

     Board member Kataoka, who joined the board in July, dissented for the

second straight meeting, although he didn't propose any specific policy action.

Instead, Kataoka's comments were included in footnotes in the bank's policy

statement issued after the board's two-day meeting.

     "With a view to reinforcing the inflation-overshooting commitment, Mr. G.

Kataoka dissented from the decision, considering that, if there was a delay in

the timing of achieving the price stability target due to domestic factors, the

bank should take additional easing measures and that it was necessary to include

that in the text," the BOJ said.

     Kataoka also said that in order to lower longer-term interest rates, it was

appropriate for the BOJ to buy Japanese government bonds so that the 15-year JGB

yield would remain below 0.2%.

     One member who believed that the momentum toward achieving the 2% price

target was being maintained said, "Should the BOJ change its policy, it needs to

ensure it achieves price stability target earlier and improves sustainability."

     The person added, "It is appropriate to maintain the current policy unless

the BOJ feels confident in the effects of a policy change."

     Another member said, "The policy effects and the possible side effects of

the purchases of risky assets including exchange-traded funds (ETFs) should be

examined from every angle."

     The October meeting also saw some cautious views on the inflation outlook.

     One member said Japan's inflation is expected to rise toward 2% as the

output gap has been positive, but that "it seems to be taking some time to reach

2% as inflation expectations formation is adaptive."

     Another member also warned, "It warrants attention that upward pressure on

energy-related prices is likely to dissipate gradually, and downward pressure on

telecommunication-related prices may be prolonged."

     The same person added, "Nonetheless, the momentum toward achieving the

price stability target of 2% is being maintained."

     Wage and price hikes have been slow respond to the current modest but

sustained economic recovery.

     The latest government data showed that the national average core CPI

(excluding fresh food) rose 0.7% on year in September, marking the ninth

straight year-on-year rise, but it is still far from the BOJ's 2% target.

     The core-core CPI excluding fresh food and energy rose just 0.2% on year in

September, showing energy is a dominant factor supporting consumer prices.

--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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