UPDATE: BOJ Wakatabe: Virus Ups Uncertainty; Risks Seen

--Adds Comments From Briefing in Paragraphs 6-14

     MATSUYAMA, Japan (MNI) - The BOJ still sees the global economy recovering

gradually but warned of downside risks, including coronavirus, Bank of Japan

Deputy Governor Masazumi Wakatabe said Wednesday.

     "Japan's economy seems to have briefly registered a significant

deceleration in the October-December quarter. However, at this point that such a

deceleration is considered temporary," Wakatabe told business leaders in

Matsuyama City.

     However, Wakatabe warned of growing uncertainties, underlining the need to

"closely monitor the downside risks at present."

     "There have been heightening uncertainties regarding the impact of the

spread of the coronavirus on the global economy," he added.

     "Since the downside risks are still significant, the BOJ, while continuing

to carefully examine various risks, will not hesitate to take additional easing

measures if there is a greater possibility that the momentum toward achieving

the price stability target will be lost," Wakatabe added.

     Wakatabe told reporters, "We cannot strictly assess the impact of the

coronavirus on the economy now but must pay great attention to its impact."

     He is focused on three routes; how the coronavirus affects the Chinese

economy, how it affects manufacturers and supply-chain in China, and how it

affects investors' risk sentiment.

     "Economic activity in China will be restricted. Manufacturing and

supply-chain will be hit by the virus. If investors' sentiment becomes cautious,

it would lower interest rates and stock prices. They will have impact on the

global economy," Wakatabe said.

     Wakatabe also said that the China's presence has risen and the BOJ must pay

great attention to the impact of the coronavirus on economy and financial

markets.

     He stated that the Chinese economy accounts for about 16% of global

economic growth in 2018, up from about 4% in 2003 when the global economy was

hit by the SARS outbreak.

     Wakatabe sees no need of considering additional easing now but added, "the

BOJ's policy is in an easing bias and downside risks to economic activity and

prices could change. If there is a great risk that the price momentum will be

lost, (the BOJ) will without hesitation conduct more easing."

     When asked about possible measures, Wakatabe said, "(He) doesn't rule out

any specific tools and doesn't decide on specific tools." "Benefits of the

negative interest rate policy continues to exceed their costs."

     He added that the coronavirus is surely downside risks but it is uncertain

how long it continues and there are policy measures.

     He thinks the majority of the board members sees no need of reviewing BOJ's

policy framework now.

     At the last meeting on Jan. 20-21, the BOJ left monetary policy unchanged,

with little sign Japan's economy has deviated from the baseline recovery view,

although broad downside risks to economic activity and prices remain. The BOJ

has upgraded its median forecasts for real economic growth rates in this fiscal

year, fiscal 2020 and fiscal 2021, boosted by the government's latest economic

stimulus measures, although the medium-term inflation forecasts were left

broadly unchanged from the three months ago.

     Other key points from Wakatabe's speech:

     --"There is no guarantee that the decoupling will last for a long time. If

the slowdown in the manufacturing sector becomes prolonged, its impact could

gradually to the non-manufacturing sector."

     --"Uncertainties regarding the impact of the tax hike are still

significant and are considered one of the risks in assessing future economic

activity."

     --"It is too early to make an assessment on households' spending attitude

at this point, and we would like to carefully examine additional data when they

become available."

     --"Under the current situation in particular, it is necessary to take into

account the possibility that downside risks to economic activity may materialize

and affect prices."

     --"The BOJ will continue to carefully examine economic and price

developments and monitor whether the mechanism will be maintained in which the

inflation rate increases toward the price stability target of 2%."

--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

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