UPDATE: MNI POLICY: BOJ Kuroda: Not A Time For 'Big' Policy

--Adds Comments From Nagoya Press Conference at Bottom

     NAGOYA, Japan (MNI) - Japan's economic and price conditions don't currently

warrant the Bank of Japan implementing the large-scale policies seen in 2013,

Bank of Japan Governor Haruhiko Kuroda said Monday, although he emphasized the

need of maintaining the easy policy now.

     "Prices have improved steadily compared with five years ago, when the

economy was suffering from deflation. Japan's economic activity and prices are

no longer in a situation where decisively implementing large-scale policy to

overcome deflation was judged as the most appropriate policy conduct, as was the

case before," Kuroda said.

     However, Kuroda ruled out any imminent policy adjustment to mitigate

side-effects, saying, "It has been taking time to achieve the 2% price target." 

     "It has become necessary to persistently continue with powerful monetary

easing while considering both the positive effects and side effects of monetary

policy in a balanced manner," he added.

     Other key points from Kuroda's speech:

     --In order to achieve the 2% price target, "it is important to maintain a

positive output gap - a driver for a rise in inflation - for as long as

possible. To this end, it is necessary to persistently continue with the current

powerful monetary easing."

     --Kuroda sounded a warning over banks' severe business environment. He

warned there was a risk that the business environment facing financial

institutions, especially regional banks, could become more severe.

     --The governor noted that "Margins from loans are falling amid prolonged

low interest rates. Credit costs are falling as the number of bankruptcy

continues falling. Banks are compensating low profits through capital gains, but

they cannot do so forever."

     --He added that if the 2% price target was achieved, the BOJ would move

toward an exit of the easy policy and the yield curve would steepen and interest

rates would rise. But the problems facing financial institutions will not be

fully solved by higher interest rates.

     --Looking forward, the BOJ will examine the risks considered most relevant

to the conduct of monetary policy and conduct its policy in an appropriate

manner, taking account of developments in economic activity and prices as well

as financial conditions.

     --If financial institutions become less risk adverse to secure profits amid

ongoing low interest rates and the competitive environment, the financial system

could destabilize should large negative shocks occur ahead.

     --It is necessary to pay close attention to future developments regarding

these risks and side effects from the viewpoint of conducting monetary policy.

     --Japan's economy has seen limited impact from global trade disputes, but

the BOJ must monitor how investor sentiment and corporate profits develop as

uncertainty over the global economy increases.

     --Protectionist policies will not benefit any economy. The BOJ will

thoroughly examine the consequences of protectionist moves and their effects on

the economy.

     --Japan's prices have been weak compared with the economic expansion and

the labor market tightening. Japan is still far from achieving the 2% stability

target but prices are unlikely to rise quickly, as structural issues putting

downward pressures on prices continue.

     Key Points from Kuroda's Press Conference:

     --"If the BOJ raised interest rate now, it would worsen Japan's economy,"

Kuroda told reporters. The BOJ doesn't currently need to implement large-scale

policy, noting when the BOJ did it in 2013, Japan's economy was seriously

suffering from deflation. He didn't elaborate on his comment. Outlining an exit

of the easy policy isn't a "productive idea," he said.

     --Kuroda said the BOJ's stance of persistently maintaining the current easy

policy to achieve the 2% price target is unchanged.

     --The scale of BOJ purchases of Japanese government bonds is falling on the

back of the tightness of bond supply-demand conditions, but the BOJ continues to

keep its yield curve policy. The annual pace of the BOJ JGB buying has recently

fallen to about Y50 trillion, although the board maintains its stance of buying

JGBs at an annual pace of Y80 trillion.

     --"We don't need to always achieve the 2% price target but do need to keep

the 2% price target for a prolonged period," Kuroda said, adding that the BOJ

maintains its easy policy to achieve the price target at the possible earliest

time.

--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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