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UPDATE: MNI 5 THINGS: BOJ Funo: Low Bank Risk, Watch Slow CPI

--Adds Comments From Briefing in Paragraphs 11-15
     SENDAI, Japan (MNI) - Bank of Japan board member Yukitoshi Funo said
Thursday that he sees a low risk that the bank's large-scale monetary easing
will hamper commercial banks' intermediation role in the economy, even though
zero interest rates are squeezing lender profits.
     Funo also told business leaders in Sendai City, northern Japan, that
consumer prices remain weak as firms are cautious about raising wages and prices
amid uncertainty. He called for a close watch on downside risks to prices and
inflation expectations.
     Later he told a news conference that the BOJ must watch for the negative
impact of the U.S. disputes with its key trading partners as protectionism would
shrink global trade and dampen growth.
     At its latest policy meeting on June 14-15, the BOJ board decided in an
8-to-1 vote to maintain its cautiously stimulative monetary easing stance under
the yield curve control framework.
     The key points from Funo's speech:
     -- There is a risk that if downward pressure on profits at financial
institutions under low interest rates continued, banks' intermediation function
would stagnate or the financial system would destabilize. But such a risk is not
high at this point because banks have sufficient capital bases.
     -- Overheated activities among financial institutions or excessively
bullish expectations in the asset markets have not been observed.
     -- It takes some time before companies raise wages and prices at a faster
pace. If weak prices continued, a rise in inflation expectations among
households and firms would be delayed. The BOJ must carefully watch for the
     -- The momentum toward achieving the 2% inflation target is maintained but
Japan is still far from the inflation target, and thus the BOJ must persistently
maintain the current easy policy.
     -- The BOJ needs to pay attention to various risks including the U.S.
economic policies and its impact on global financial markets, geopolitical risks
and the uncertainty over trade policies.
     The key points from Funo's news conference:
     -- "I expect consumer prices to rise with fluctuations," Funo said, adding
the recent slower pace of year-on-year increase in the core CPI (excluding fresh
food) at +0.7% in April, down from +0.9% in March and +1.0% in February, was not
     -- The former Toyota Motor executive believes the recent slowdown in
inflation is "temporary" and that prices should "rebound," although he is aware
of the structuration weakness of service prices in Japan, due partly to
regulated low wages for caregivers and daycare workers as well as depressed
imputed rents.
     -- But at the same time, Funo also said the BOJ board will keep a close
watch on a vicious circle of slow price rises lowering inflation expectations,
which are limiting wage and retail price hikes. "Looking ahead, we will monitor
prices without bias. We will continue discussing our policy at every meeting and
will consider whether it is necessary to make any policy adjustments," he said.
     -- Funo said that BOJ must watch the drag from the protectionist U.S.
policies, which could reduce trade volumes and slow global growth.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email:
[TOPICS: MAJDS$,MMJBJ$,M$A$$$,M$J$$$,MT$$$$]

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