UPDATE: MNI POLICY: BOJ Kuroda: To Keep Low Rates for 2% CPI

--Adds Comments From Q&A Session at Bottom

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

vowed to maintain low interest rates for a long time but noted the central

bank's easing stance is not based on a specific period.

     He also told business leaders in Osaka, western Japan, that the BOJ's

latest policy intention decided in July is accurately understood by market

participants.

     "It is very important to make clear that the BOJ will maintain the current

extremely low levels of short- and long-term interest rates for an extended

period of time," Kuroda said in a speech.

     But he also said the forward guidance "is not based on a specific period of

time."

     At its July meeting, the BOJ board decided in a 7-to-2 vote to make its

long-term interest rate target and asset purchases more "flexible," allowing the

nearly flat Japanese government bond yield to steepen slightly in line with

firmer growth and inflation.

     The BOJ adopted "forward guidance" for the policy rates to show that it is

"strengthening its commitment" to guiding low inflation to its stable 2% target.

This should help the bank "persistently continue" aggressive monetary easing as

the stubborn deflationary mindset lingers among businesses and households.

     Kuroda said since it takes time to achieve the 2% price target, the BOJ

needs to maintain the easy policy. But he added that in continuing with

aggressive monetary easing, "we now need to consider both its positive effects

and side effects in a balanced manner."

     --EXTERNAL DOWNSIDE RISKS

     "Overseas economies have continued to grow firmly on the while," Kuroda

said, repeating the bank's latest assessment.

     "Japan's economy is likely to continue its moderate expansion. However,

there are various risks to this baseline scenario, and uncertainties regarding

overseas economies in particular warrant attention."

     "It is necessary to thoroughly examine the extent to which recent

protectionist moves, such as the trade friction between the United States and

China, will affect trade as well as firms' investment activities."

     In Japan, prices have continued to show relatively weak developments

compared to the economic expansion and the labor market tightening, Kuroda noted

but said the mechanism for a rise in inflation itself isn't lost.

     He also repeated his earlier remarks that foreign exchange rates must

reflect economic fundamentals and move in a stable manner. The BOJ will continue

watching the forex impact on the economy, he said.

     --WATCHING SIDE-EFFECTS

     Kuroda also said that the BOJ continues paying attention to the accumulated

effects of prolonged easing on the financial system and banks' profits as the

BOJ needs to keep the easy policy for an extended period to achieve the 2% price

target.

     "We will conduct monetary policy by taking account of developments of

financial conditions," he said without elaborating.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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