REPEAT:MNI STATE OF PLAY: BOJ To Keep Policy, 2% CPI Timeframe

Repeats Story Initially Transmitted at 11:16 GMT Apr 26/07:16 EST Apr 26

By Max Sato

     TOKYO (MNI) - The Bank of Japan is set to maintain its cautiously

stimulative monetary easing stance under the yield curve control framework at

its two-day policy meeting ending around midday (0300 GMT) Friday, probably in

an 8-to-1 vote as seen in the recent meetings.

     The BOJ believes large monetary stimulus is still needed to guide low

inflation around 1% toward its 2% price stability target but the majority of the

board also thinks additional easing is unnecessary as long as the path toward

the target remains intact.

     --NO TIMEFRAME CHANGE

     The BOJ board is also expected to maintain its medium-term growth and

inflation projections, repeating what many see as an optimistic outlook that the

bank can hit the inflation target "around fiscal 2019."

     In its quarterly Outlook Report, the BOJ board is likely to project that

the core consumer price index (excluding fresh food prices) will rise about 2%

in fiscal 2020 -- the first official forecast as part of its new three-year

projections.

     The board's median forecasts for core CPI this fiscal year and in fiscal

2019 are likely to be little changed from its January forecasts at +1.4% and

+1.8%.

     Despite slower factory output and exports in the first quarter of the year,

the BOJ board is likely to maintain its overall economic assessment that Japan's

economy is "expanding moderately, with a virtuous cycle from income to spending

operating."

     BOJ Governor Haruhiko Kuroda continues to face an uphill battle in

anchoring 2% inflation in his second five-year term that began on April 9. The

aging population dampens consumption and safe-haven yen buying could hurt

exporter profits, although the dollar has rebounded above Y109 in recent trading

after slipping below Y105 late last month.

     The BOJ will keep the shape of the nearly flat bond yield curve (-0.1%

overnight and around 0% in the 10-year zone) for some time to come because the

increase in consumer prices remains slow amid the sustained, moderate economic

recovery.

     The reflationist board member Goushi Kataoka is expected to dissent for the

sixth straight meeting since he took office last July. He has argued that

additional easing would be necessary to achieve the 2% inflation target at an

early stage, but hasn't proposed any specific policy action.

     --NO EXIT TALK

     At a post-meeting news conference at 1530 JST (0630 GMT) Friday, Kuroda is

expected to repeat his recent remarks that now is not the right time for the BOJ

to publicly discuss an exit strategy because Japan is far from achieving the 2%

price target and a premature discussion would confuse financial markets.

     On the political front, the public approval ratings of the cabinet of Prime

Minister Shinzo Abe have fallen sharply in light of new revelations about

lingering political scandals regarding forged public documents on a questionable

sale of state land by the finance ministry and a defense ministry cover-up of

daily activity logs on peacekeeping operations.

     The scandals are clouding the prospects for Abe's re-election in September

for an unprecedented third term as the ruling party leader, and thus prime

minister.

     --KEEP 2% TARGET

     But on the first day of his second term, Kuroda said he would continue

trying to anchor inflation around 2% even if the Abe administration was replaced

by a government that would be happy with a lower inflation rate.

     "I don't think we need to change the 2% price stability target," Kuroda

told a news conference, when asked what he would do if the five-year-old accord

with the current government were to be changed by another government during his

second five-year term.

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