UPDATE:MNI POLICY: BOJ Kuroda: Risk Weak Econ To Affect Prices

--Adds Comments From Q&A,  Briefing in Paragraphs 15-21

     OSAKA, Japan (MNI) - Bank of Japan Governor Haruhiko Kuroda warned Tuesday

of the risk that the economic slowdown stemming from overseas economies will

spread to domestic prices.

     Kuroda, speaking to business leaders in Osaka City said, "It is important

to consider appropriate monetary policy measures while thoroughly weighing their

benefits and costs." "The BOJ recognizes that there remains an important

challenge to consider what is required to further enhance the sustainability of

policy measures."

     Kuroda stopped short of committing to further easing at the next

policy-setting meeting, scheduled on Oct 30-31.

     The BOJ left monetary policy unchanged Thursday, but vowed to re-examine

economic and price developments at the next meeting.

     "Slowdowns in overseas economies have continued to be observed and their

downside risks seem to be increasing, the BOJ judges that it is becoming

necessary to pay closer attention to the possibility that the momentum toward

achieving the price stability target will be lost," a policy statement said,

following the Board's 7-to-2 vote.

     "The BOJ will reexamine economic and price developments at the next MPM,

when it updates the outlook for economic activity and prices," it added.

     Kuroda said last week, "I'm more positive on additional easy policy than at

the previous meeting in July." But he indicated it doesn't mean that the BOJ was

committed to move at the October policy meeting.

     Other key points from Kuroda's speech:

     --"Downside risks concerning overseas economies seem to be increasing. It

is necessary to bear in mind the possibility that the pick-up will lag behind by

longer than expected. The BOJ judges that it is becoming necessary to closely

examine whether overseas economies will pick up while the aforementioned

firmness in domestic demand is being maintained."

     --"If the slowdown in overseas economies lasts longer than expected, it is

necessary to pay attention to the possibility that firms' investment stance will

become cautious, mainly in manufacturing sector."

     --"The BOJ has the same policy stance, in that preventing and insuring

against risks are taken into consideration when conducting monetary policy. In

doing so, what is essential for the BOJ is assessment of the momentum toward

achieving the price stability target."

     --"Given the slowdown in overseas economies have continued to be observed

and their downside risks seem to be increasing, it is becoming necessary to pay

closer attention to the possibility that the momentum toward achieving the price

stability target. Developments in the output gap warrant particular attention."

     --If downside risks to global economies materialized, Japan's economic

growth rate will fall sharply. "If this happens, the momentum toward achieving

the price stability target could be affected through shrinkage of the output

gap."

     --As for the outlook for Japan's economy, Kuroda said, "the keys to this

outlook are following; the timing of a pick up in overseas economies and whether

the firmness in domestic demand will be sustained until that happens."

     -- "Overseas economies have been growing moderately on the whole, but the

pace has continued to decelerate since the start of the year."

     --Kuroda said that foreign exchange rate should move stably reflecting

economic and fundamentals and the BOJ must carefully watch forex moves and their

impact on the economy and prices.

     --Kuroda told reporters that the BOJ always considers the benefits and the

costs of more easing, such as lowering the short- or/and long-term policy

interest rates, expanding the asset purchases and accelerating the pace of

injecting monetary base.

     --"I'm more positive about further easing as downside risks to the global

economy increased. But (I have) no any preconception," Kuroda said.

     --When asked about lowering short- and medium-term interest rates, which is

more effective in stimulating economic activities, Kuroda said, "That's is

option" as the drop in long-term interest rates are negative for life insurance

firms and pension funds.

     --The BOJ doesn't automatically curb the drop in long-term interest rates

caused by the drop in overseas bond yields.

     --However, he said that it isn't desirable for long-term interest rates to

continue sharply, which worsen return from investments by life insurance firms

and pension funds.

     --"If happened, (the BOJ) will adjust its bond buying, such as the scale or

zone," to curb a big drop in bond yields, Kuroda said without elaborating.

--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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