REPEAT: MNI: Kuroda '4 Tools' Not Limit Of Future BOJ Easing

Repeats Story Initially Transmitted at 04:45 GMT Apr 4/00:45 EST Apr 4

By Hiroshi Inoue

     TOKYO (MNI) - If the Bank of Japan needs to resort to additional easing

measures, it can go beyond the four possible options previously laid out by

Governor Haruhiko Kuroda, although current conditions don't warrant any

immediate policy action, MNI understands.

     In recent months, when pushed on possible responses to a further slowdown

in the economy, Kuroda has pointed to four tools, including lowering short- and

long-term rates, expanding asset purchases and accelerating injections into the

monetary base, all while examining pros and cons of additional easing.

     Kuroda cites the four policy options when questioned to underline what the

BOJ has at its disposal under its current framework, MNI has been told.

     --FIFTH, SIXTH OPTION

     However, any additional policy measures will not be limited to these four

options, with additional action open to the BOJ dependant on prevailing economic

and financial conditions. But some officials are concerned that talk of a fifth

or even sixth policy option will have financial market players in a frenzy of

speculation over additional easing.

     The main objective for officials is to find a new option after a long

period of easy policy where benefits clearly outweigh the costs.

     Reducing the key policy rate into deeper negative territory from the

current -0.1% is not a favoured option at the BOJ unless the yen strengthens

considerably from current levels -- a scenario seen at most troubling to the

central bank.

     Strengthening forward guidance is also seen as an option, but again it has

a downside in restricting future policy flexibility.

     Further money market operations, including injections of long-term

liquidity in to the system at fixed rates is another option open to the BOJ.

     --LOWER RATE RISK

     BOJ officials believe that declining real interest rates have been a main

driver behind improving economic activity and prices, as it is core to the yield

curve control policy, but they are less sure how furthering bank lending rates

will boost corporate fund demand, although they still believe it will help.

     But the risk remains that lower lending rates will further squeeze banks'

margins, increase the likelihood of riskier loans that will in turn lead to a

greater proportion of non-performing loans and then a squeeze on lending.

     Japan's economy remains in a delicate place, as exports and industrial

production slow. However, solid capital investment plans for FY19 outlined in

the latest Tankan survey suggest there is no imminent need for additional easy

policy as BOJ officials are encouraged capex hasn't yet been adversely affected

by weaker global demand. They will further analyse future risks at the April

24-25 policy meeting, when the latest global growth forecasts from the

International Monetary Fund can be added to the mix.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com