REPEAT: MNI: BOJ Keeps Policy Target, Sees Modest Econ Pickup

     TOKYO (MNI) - The Bank of Japan board decided Friday in an 8-to-1 vote to

maintain its current monetary easing stance under the yield curve control

framework it adopted in September 2016, while projecting the moderate economic

recovery will continue despite some soft spots.

     No change in monetary policy was widely expected. The BOJ believes large

monetary stimulus is still needed to guide low inflation below 1% toward its 2%

price stability target.

     --ANALYZING WEAK CPI

     The focus is on the bank's July meeting where the board will review its

medium-term growth and inflation projections. Price gains remain slow amid

cautious wage and retail price hikes.

     Japan's consumer prices remain weaker than BOJ officials expected a few

months ago and BOJ economists will analyze the reason why prices and wages have

been slow to respond to a sustained economic recovery.

     They may put their assessment forward at the July 30-31 policy meeting.

     Under the yield curve control framework, the BOJ is trying 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%.

     --KATAOKA DISSENTS AGAIN

     Board member Goushi Kataoka, who joined the board in July 2017, dissented

for the seventh straight meeting. He continued to argue that additional easing

would be necessary to achieve the 2% inflation target at an early stage, but

didn't propose any specific policy action.

     The board left its assessment of overall economic conditions and major

economic components unchanged from its last policy meeting in April.

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

to spending operating," the BOJ said. "Japan's economy is likely to continue to

be a moderate expansion."

     Japan's economy had a slow start to the April-June quarter, judging from

industrial production and household spending, after it posted the first

contraction in about two years in the first quarter as the severe winter weather

dampened consumption.

     But both policymakers and private economists expect the economy to return

to an above-potential growth rate of over 1% annualized in the second quarter.

     The BOJ maintained its view, saying, "Overseas economies have continued to

grow firmly on the whole."

     --ECONOMIC ASSESSMENT UNCHANGED

     It also repeated its recent assessment that exports, industrial production

and business fixed investment have been on an uptrend, while that private

consumption has also been increasing moderately with fluctuations, backed by

improving employment and income conditions.

     The board also left its near-term assessment of inflation unchanged from

April, repeating, "Inflation expectations have been more or less unchanged."

     But following the recent weak data, the BOJ changed the wording in

describing the current price conditions, saying, "The year-on-year rate of

change in the consumer price index (CPI, all items less fresh food) is in the

range of 0.5% to 1.0%." Previously, it had said, the core CPI rise was around

1%.

     The BOJ is expected to keep the shape of the nearly flat bond yield curve

(-0.1% overnight and around 0% in the 10-year zone) for some time to come

because the increase in consumer prices remains slow amid the sustained,

moderate economic recovery.

     The BOJ's asset purchases, which are not the main policy target any longer,

will be maintained at the current pace. The outstanding amount of its JGB

holdings will increase about Y80 trillion annually, but the pace has slowed in

light of the recent drop in yields.

     The annual pace of purchases of other assets will also be maintained at Y6

trillion for exchange-traded funds (ETFs), Y90 billion for Japan real estate

investment trusts (J-REIT), Y2.2 trillion for commercial paper and Y3.2 trillion

for corporate bonds.

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