REPEAT: MNI BOJ Minutes: Watch Prices; No Need for More Easing

Repeats Story Initially Transmitted at 06:34 GMT Dec 26/01:34 EST Dec 26

     TOKYO (MNI) - Most of the nine Bank of Japan policy board members saw no

need to conduct additional monetary easing to lift low consumer prices, with

some warning against side-effects of prolonged massive asset purchases and low

profit margins for lenders, the minutes of the BOJ's Oct. 30-31 meeting released

Tuesday showed.

     Some board members projected labor shortages would force firms to raise

wages eventually as there is a limit to their efforts to absorb higher costs by

making their operations more efficient or curtailing business hours. Higher

productivity will initially exert downward pressures on prices but in the longer

term, it will support price rises by raising expectations for higher corporate

profits, they argued.

     "Most members shared the recognition that, although it was necessary to

carefully examine the fact that firms' wage- and price-setting stance remained

cautious, the momentum toward achieving the 2% price stability target was being

maintained," the minutes said.

     Firms' stances are likely to gradually shift toward raising wages and

prices with the steady improvement in the output gap, those members said.

     Indicators of medium- to long-term inflation expectations have stopped

declining, with some indicators showing an uptrend, and such inflation

expectations are likely to rise steadily as further price rises come to be

observed widely, they added.

     On the current pace of large-scale easing, "Most members shared the

recognition that it was appropriate for the BOJ to persistently pursue powerful

monetary easing under the current guideline for market operations, and that

additional easing measures should not be implemented at this point."

     A few members were of the view that the current monetary policy framework

incorporated a mechanism in which the effects of accommodative monetary policy

would be enhanced through a decline in real interest rates and a rise in the

natural rate of interest, with inflation expectations and the potential growth

rate rising.

     On side-effects, "A few members said that, if the BOJ took extreme monetary

easing measures only for the purpose of hastening to achieve the price stability

target, side effects such as an accumulation of financial imbalances and an

impaired functioning of financial intermediation could arise, consequently

preventing monetary accommodation from producing the intended policy effects to

a sufficient degree."

     In response to these views, one member argued that "in a situation where it

was likely that excess supply capacity remained in both capital stock and the

labor market, and considering that a consumption tax hike was scheduled for

2019, the bank should implement additional easing measures at this moment,

thereby raising the probability of achieving the price stability target

earlier."

     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.

     Weak price data at the time 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%.

     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%.

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