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Repeats Story Initially Transmitted at 08:55 GMT Jan 11/03:55 EST Jan 11
--Recent Yen Move No Indication Of A Shift In BOJ Policy
By Max Sato
     TOKYO (MNI) - The Bank of Japan's monetary easing stance will remain
unchanged, despite speculation that the central bank may shift interest rates
upward while the consumer inflation outlook picked up at a delicate time when
wage growth prospects remain uncertain.
     The dollar's slip to around Y111.75 Thursday from above Y113 two days ago
was fairly steep in the absence of any change in monetary policy stances in
either the U.S. and Japan, but BOJ officials believe it was initially caused by
market talk of Chinese plans to sell U.S. Treasuries and driven further by
position squaring.
     The dollar is still within the recent trading range of Y108 to Y114 and a
sharp yen appreciation is unlikely give the BOJ's stance to continue its
large-scale easing until the annual inflation rate, currently just under 1%,
rises above 2%, and while the U.S. Federal Reserve plans to conduct more
interest rates hikes.
     "The appreciation of the yen cannot be explained from the viewpoint of
interest rate differentials between the U.S. and Japan. The dollar fall this
week appears to have stemmed from position adjustments," a person familiar with
the BOJ's policymaking process said.
     --NO POLICY IMPLICATIONS
     As usual, BOJ officials believe that domestic fixed-income investors
understand that the BOJ's lower purchases of long-term bonds on Tuesday were in
line with market conditions and do not have any policy implications.
     Since the central bank switched its policy target to yield curve control
from the amount of asset purchases in September 2016, the BOJ has reduced the
annual pace of Japanese government bond purchases to around Y60 trillion from
Y80 trillion, as necessary to keep the 10-year JGB yield around zero percent.
     The lower purchase total also reflects the Ministry of Finance's plans to
sell Y149.9 trillion of government bonds in fiscal 2018 starting on April 1,
down Y4.1 trillion from an initial Y154.0 trillion for the current fiscal year.
     The drop in bond issuance in fiscal 2018, the fourth straight year of
declining issuance, is due to a fall in refinancing bond issuance, thanks to
super-low bond yields. The MOF will reduce the issuance of 1-year Treasury
discount bills as well as 2-, 5-, 10-, 30- and 40-year government bonds.
     -- HIGHER PRICE OUTLOOK
     The BOJ's consumer sentiment diffusion index for the current climate rose
by 1.6 points to -11.9 in December, posting the fourth consecutive rise, as more
people said they believed Japan's economic growth prospects were rising, with
over two thirds of people projected things would be unchanged. 
     In its quarterly survey of consumer sentiment, conducted between Nov 10 and
Dec 6 and released Thursday, the BOJ said the consumer sentiment outlook index
projecting conditions a year ahead marked the first rise in two quarters,
increasing 2.5 points to -15.5 in December after falling 0.7 point to 18.0 in
September.
     Amid the recent rise in stock markets, more people expect better business
ahead and fewer people forecast dimmer growth prospects when compared to three
months earlier.
     But at the same time, more than a half of those surveyed forecast their
income would be unchanged a year ahead and more people thought their income
would decline.
     BOJ officials believe this can be due in part to concerns that wage growth
may not catch up with the recent uptrend in the cost of living.
     For a central bank that is struggling to guide inflation to its stable 2%
target, an uptick in the inflation outlook among households amid rising fresh
food and gasoline prices, as well as higher home delivery and other costs, comes
at a delicate time.
     While Prime Minister Shinzo Abe is calling for an average total wage
increase of 3% in fiscal 2018, including automatic seniority increases, the
Japanese Trade Union Confederation is demanding an average rise of around 4%.
     But the public are not holding their breath, given the continued cautious
approach to raising fixed labor costs among many firms despite record profits
overall.
     --UNCERTAINTY OVER WAGES 
     Total wages, including regular pay and bonuses, rose 1.98% on year in
fiscal 2017, with the pace increase slowing slightly from 2.00% in the previous
year amid uncertainties over the Trump administration's economic and diplomatic
policies.
     More importantly, base wages rose just 0.48% in fiscal 2017, compared to
0.31% in the previous year.
     BOJ officials wish to see an average 1% hike in base wages, but that seems
to be unlikely because business leaders tend to cite uncertainties every year as
a reason for them being cautious about wage hikes.
     The BOJ survey also showed that the percentage of respondents expecting
prices to rise in the next year stood at 75.6% in December, up from 64.2% in
September, while 1.9% said prices would fall in the next year, unchanged from
three months earlier.
     Those saying prices would be little changed 12 months ahead fell to 21.6%
from 26.7%.
     The median CPI forecast rose to +3.0% in the latest survey from +2.0% in
the previous release in light of steady price gains for daily necessities.
     Looking five years ahead, 81.9% said prices would rise, compared with 81.4%
three months earlier. Meanwhile, 3.5% of respondents expect prices to fall,
compared with 3.8% in September. Those saying prices would be little changed
rose to 13.1% from 12.7%. 
     The median CPI forecast for five years ahead stayed at +2.0%, indicating
people project more stable price gains in the longer term.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com