REPEAT:BOJ Maintains Policy, Sees Slower CPI; Kataoka Dissents

Repeats Story Initially Transmitted at 04:47 GMT Oct 31/00:47 EST Oct 31

     TOKYO (MNI) - The Bank of Japan board decided Tuesday 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 will seek 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%.

     The BOJ also reiterated its inflation-overshooting commitment, under which

it will continue monetary easing until inflation is firmly anchored around 2%,

even if price gains overshoot that level for a time.

     Board member Goushi 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%.

     At the previous policy meeting on Sept. 20-21, Kataoka argued that the

current policy was insufficient to meet the central bank's 2% policy goal by the

current target date of sometime in fiscal 2019.

     In July, the BOJ pushed back the timeframe for hitting the 2% inflation

target to "around fiscal 2019" from the previous estimate of "around fiscal

2018." It was the sixth delay since the bank began aggressive easing in April

2013.

     In its quarterly Outlook Report issued after today's meeting, the BOJ said

the board's median forecast for core CPI (excluding fresh food) for the current

fiscal year was revised down to +0.8% from +1.1% projected in July in the face

of the continuing slow rise in price pressures.

     The median core CPI forecast for fiscal 2018 was revised down slightly to

+1.4% from +1.5% but the forecast for fiscal 2019 (excluding the direct impact

of a sales tax hike planned for October 2019) was left at +1.8%.

     In the report, the BOJ repeated that Japan can achieve its 2% price

stability target "around fiscal 2019."

     The board was cautious about inflation expectations, repeating that they

"have remained in a weakening phase."

     BOJ officials believe business and household inflation expectations have

bottomed out but haven't clearly turned into an uptrend.

     "The momentum toward achieving the 2% price target has been maintained, but

it is not yet sufficiently firm," the central bank said.

     The board maintained is near-term inflation outlook, saying, "The

year-on-year rate of change in the CPI is likely to continue on an uptrend and

increase toward 2%, mainly due to the improvement in the output gap and the rise

in medium- to long-term inflation expectations."

     The board's median economic growth forecast for the current fiscal year was

revised up slightly to +1.9% from the +1.8% made in July. The board's real GDP

projections for the following years were unchanged at +1.4% for fiscal 2018 and

+0.7% for fiscal 2019.

     The BOJ continues to estimate Japan's potential growth rate to lie in a

range of 0.5% to 1.0%.

     The BOJ repeated it would make policy adjustments as appropriate, "taking

account of developments in economic activity and prices as well as financial

conditions, with a view to maintaining the momentum toward achieving the price

stability target."

     The BOJ left unchanged its assessment of the economy, saying, "Japan's

economy is expanding moderately, with a virtuous cycle from income to spending

occurring."

     In the near term, the Japanese economy is likely to continue its moderate

expansion, the BOJ said.

     In light of data showing solid growth but slow price rises, the BOJ said

"upside and downside risks to economic activity are generally balanced, and

risks to prices are skewed to the downside."

     This was an upgrade from its previous assessment in July, when the BOJ

said, "With regard to the outlook for economic activity, risks are skewed to the

downside, particularly regarding developments in overseas economies."

     But risks to inflation still point downward. "With regard to the outlook

for prices, risks are skewed to the downside, especially those concerning

overseas economies and developments in medium- to long-term inflation

expectations."

     The BOJ sought to justify the need to continue large-scale monetary

stimulus to hit its 2% inflation target.

     "Examining financial imbalances from a longer-term perspective, there is no

sign so far of excessively bullish expectations in asset markets or in the

activities of financial institutions," it said.

     But it repeated its warning that "Prolonged downward pressure on financial

institutions' profits under the continued low interest rate environment could

create risks of a gradual pullback in financial intermediation and of

destabilizing the financial system."

     "However, at this point, there risks are not judged as significant, mainly

because financial institutions have sufficient capital bases," it said.

--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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com