UPDATE: MNI: BOJ Funo: Easy Policy Seen Beyond Spring '20

--Adds Comments From Briefing in Paragraphs 5-10

     HIROSHIMA, Japan (MNI) - Bank of Japan board member Yukitoshi Funo said

Wednesday that it is highly possible that the BOJ will maintain the current low

interest rates beyond spring 2020.

     "For an extended period of time, 'at least through around spring 2020'

doesn't mean until spring 2020, it also includes the period after," Funo told

business leaders in Hiroshima City.

     According to Funo, the BOJ will manage its monetary policy in an

appropriate manner to achieve the 2% price target, taking economic and price

conditions into account along with the financial market situation.

     He didn't elaborate on how or when the BOJ would take additional easy

policy.

     Funo told reporters that he sees no need for additional easy policy or

strengthening the forward guidance now, as the main scenario remains that

Japan's economy will pick up in the second half of this year.

     However, if labor market conditions worsened or the momentum toward hitting

the 2% price target is lost, the BOJ will take appropriate action without

hesitation, Funo said.

     Funo admitted that response of prices to the output gap remains dull but he

believe that the positive output gap will increase upward pressure.

     "The positive output gap is being maintained for a prolonged period but the

achievement of the 2% target doesn't come in sight now. But I believe the

positive output gap contributes to boosting prices and it is essential to

maintain the positive output gap to achieve the 2% price target," Funo said.

     Funo also said that Japan's prices remained weak compared with the economic

recovery and a tight labor market condition, but prices are largely in line with

the forecasts made in April.

     He doesn't see the consumption tax hike expected in October sending the

economy into serious downturn, saying that the reaction of the tax hike would be

moderate as the last minute surge in demand is mild.

     At the latest policy meeting held June 19-20, the BOJ left policy

unchanged, restating the forward guidance for policy rates, saying it will

maintain the easy policy "at least through around spring 2020", while noting

Japan's economy continued to expand moderately despite growing downside risks.

     The next policy-setting meeting is scheduled for July 29-30 when the board

updates its quarterly Outlook Report, including growth and inflation forecasts

until fiscal 2021.

     Other key points from Funo's speech:

     --The BOJ needs to maintain current low interest rates to realize the

achievement of the 2% price target and also to keep a positive output gap for as

long as possible.

     --With the output gap remaining positive, firms' stance will gradually

shift toward further raising wages and prices, and households' toleration of

price rises will increase. Medium- to long-term inflation expectations will also

rise, he said.

     --However, Funo warned that it is not easy to change people's mindset and

behaviour, noting wages and prices will not increase easily and it takes time to

change previous practices.

     --Funo said that Japan's exports are expected to remain weak for the time

being on the back of the slowdown in overseas economies, but he laid out an

optimistic view, saying that exports will likely return to a moderate recovery

path.

     ---Japan's prices remain weak compared with an economic expansion and the

tightness of the labour market condition.

     --Future risks facing Japan's economy are various and big and overseas

economies are fragile, and it is necessary to pay close attention to their

impact on corporate and household sentiment.

--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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