REPEAT: MNI POLICY: BOJ Kataoka Urges More Easing

     YOKOHAMA, Japan (MNI) - Bank of Japan board member Goushi Kataoka repeated

his earlier remarks Thursday, calling for stronger monetary easing to cope with

downside risks in the future.

     He also told business leaders in Yokohama City, south of Tokyo, that the

improvement in the output gap is likely to slow next year and U.S. trade

disputes will hurt Japanese exports.

     "The BOJ should conduct additional easing, instead of strengthening the

policy framework for its sustainability, as the board has revised down its

inflation outlook."

     At its July 30-31 meeting, the BOJ board decided in a 7-to-2 vote to make

its long-term interest rate target and asset purchases more "flexible," allowing

the nearly flat Japanese government bond yield to steepen slightly in line with

firmer growth and inflation.

     The BOJ adopted "forward guidance" for the policy rates to show that it is

"strengthening its commitment" to guiding low inflation to its stable 2% target.

     Kataoka dissented, arguing that it would be better to promise additional

easing in the event of a downward revision to the board's longer-term inflation

outlook.

     Later at a news conference on Thursday, he said the board decision in July

didn't boost or weaken the degree of easing while it is aimed at "enhancing the

policy framework," meaning making the easy policy more sustainable.

     Asked about the side-effects of easing, he said he sees no specific case,

although some of his colleagues are warning that zero to negative interest rates

are squeezing lenders' profit margins, which could threaten the financial

system. 

     "As for the side-effects, we will carefully watch various data and cope

with them appropriately," he told reporters.

     --LOWER LONG-END YIELDS

     In his speech on Thursday, Kataoka said that the BOJ needs to lower

Japanese government bond yields with maturities of 10 years and longer, which he

said would help the output gap improve further and support wage and price hikes.

     "It is necessary for the BOJ to make a commitment to conducting additional

easing if it revises down its assessment of medium- to long-term inflation

expectations," he said.

     Kataoka also said that the BOJ doesn't need to allow the long-term interest

rate to move in a wider range because the board's inflation projection was

revised down in July.

     --SLOWER GROWTH SEEN

     "If the BOJ allows the long-term interest rate to rise, even temporarily,

it would delay the timing of achieving the 2% price target," Kataoka said.

     "The output gap is expected to stay in positive territory but the pace of

its improvement will slow in or after fiscal 2019, when the economic growth rate

is expected to slow," he said. "It is unlikely that the momentum toward

achieving the 2% price target will pick up under the current policy framework."

     As for downside risks, Kataoka said the BOJ should pay more attention to

overseas economies amid growing uncertainties.

     --TRADE ROW IMPACT

     "If the (U.S.-China) trade friction leads to lower stock prices and a drop

in capital investment through the worsening of corporate sentiment, its impact

on the global economy cannot be ignored," Kataoka warned.

     He also said that the BOJ must not underestimate the impact of the sales

tax hike scheduled in October 2019 on consumer spending.

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