REPEAT: MNI: BOJ Keeps Policy Target; Spending, Capex Firmer

     TOKYO (MNI) - The Bank of Japan board decided Thursday 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.

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

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

price stability target.

     The BOJ board also maintained its overall assessment that the economy is

expected to stay on a modest recovery trend, led by a pickup in exports, factory

output and business investment.

     The BOJ slightly upgraded its view on consumer spending, which it now sees

as "increasing moderately, albeit with fluctuations" instead of "increasing its

resilience."

     Despite the slow start to consumer spending in the October-December

quarter, BOJ officials believe consumption will rebound in Q4 GDP data after a

slump in the previous three months caused by bad weather. They note improving

employment and income conditions. 

     The BOJ also upgraded its assessment of business investment to "increasing"

from "increasing moderately," following a sharply revised up capex in Q3 GDP

data and solid investment plans seen in the BOJ's quarterly Tankan survey for

December.

     But the BOJ downgraded its view on public investment, which is "more of

less flat" while keeping its high levels. It was "increasing" earlier but the

effects of last fiscal year's supplementary budget have faded.

     The board will review its medium-term growth and inflation projections

through fiscal 2019 to March 2020 at its Jan. 22-23 policy meeting.

     The year-on-year rate of change in the core CPI (excluding fresh food) has

been in a range of 0.5% to 1.0%, the bank noted.

     The latest data showed that the national average core CPI rose 0.8% on year

in October, marking the 10th straight year-on-year rise after rising 0.7% in

August.

     The BOJ maintained its outlook that the inflation rate will rise toward 2%.

     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 Goushi Kataoka, who joined the board in July, dissented for

the third 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.

     "Taking account of risk factors such as the consumption tax hike [planned

in October 2019] and a possible economic downturn in the United States, it was

desirable to achieve the price stability target in fiscal 2018, and that it was

appropriate for the BOJ to purchase JGBs so that yields on JGBs with maturities

of 10 year and lower would be broadly lowered," Kataoka said.

     At the BOJ's previous policy meeting in October, Kataoka 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%.

     Kataoka was also oppose to the board's majority view that the annual

inflation rate will continue rising toward 2%, saying the possibility was "low

at this point."

     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.

     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.

     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 board left its near-term assessment of inflation conditions unchanged

from the previous meeting on Oct. 30-31, repeating, "Inflation expectations have

remained in a weakening phase."

     In the December Tankan survey, companies on average revised up their

expectations for the consumer price index in a year's time from the previous

Tankan survey, but left their inflation outlook for three and five years ahead

unchanged from September.

     Firms on average expect the annual consumer inflation rate to stand at 0.8%

a year from now, up from the 0.7% projected in September. It was the first rise

in expectations since June, when the near-term price outlook was revised up to

0.8% from 0.7% in March.

     But BOJ economists are more focused on inflation expectations three and

five years ahead in assessing inflation trends. Firms' inflation forecasts for

three and five years ahead were unchanged at 1.1% each in December.

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