UPDATE: MNI POLICY: BOJ's Kuroda Clarifies Downward Rates Bias

--Adds Comments From Briefing in Paragraphs 3-9

     NAGOYA, Japan (MNI) - Bank of Japan Governor Haruhiko Kuroda has clarified

a downward bias in policy rates through new forward guidance, saying the bank's

policy is "further tilted" towards monetary accommodation.

     Despite the bank's easing policy, however, Kuroda told reporters that the

BOJ needed to prevent super long-term interest rates from falling excessively,

as falls would erode investment returns for life insurance firms and pension

funds.

     "Short and medium-term interest rates are more effective in stimulating

economic activity and prices," Kuroda told reporters after addressing business

leaders in Nagoya.

     He also said if the government increased the issuance of longer Japanese

government bonds it would prevent super long-term interest rates from falling.

     Fiscal policy would then have a greater impact under the yield curve

control policy which continues to restrict a rise in JGB yields.

     At the latest meeting last week the BOJ board left policy settings

unchanged, forgoing an opportunity to take pre-emptive action.

     The bank maintained its view that the economic recovery was continuing due

to solid domestic demand, although downside risks remained.

     The BOJ did tweak its forward guidance, indicating that it would tolerate

policy rates moving below current levels.

     "As for the policy rates, the BOJ expects short and long-term interest

rates to remain at their present or lower levels as long as it is necessary to

pay close attention to the possibility that the momentum toward achieving the

price stability target will be lost," the BOJ said.

     The previous forward guidance was that the BOJ would maintain the current

easing policy until "at least around spring 2020."

     Asked how the BOJ could tolerate the 10-year bond yield falling below

-0.295%, as seen on Sept. 4, Kuroda said: "We don't need to change the current

stance of allowing a wider trading range (of +0.2% to -0.2%) for the 10-year JGB

yield, double unofficial range of +0.1% to -0.1%."

     In July 2018, the bank "strengthened" the framework, allowing a wider

trading range of +0.2% to -0.2% for the 10-year Japanese government bond yield,

double the previous, unofficial range of +0.1% to -0.1%.

     Other Key Points and quotes from Kuroda's speech:

     --"The BOJ clearly related the forward guidance to the momentum toward

achieving the price stability target. The BOJ reflected its policy stance of

being tilted towards monetary accommodation in the forward guidance for the

policy rate as well."

     --"It clarified that there would be a downward bias in the policy rates.

However, I would like to add that the this doesn't limit additional easing

measures to lowering the policy rates."

     --"There is no change in our understanding that, besides lowering the

policy rates, there are various possible measures for additional easing - such

as expanding asset purchases and accelerating the expansion of the monetary base

- depending on developments in economic activity and prices as well as financial

conditions, and that combination or applications of these various measures also

would be an option."

     --"Domestic demand is likely to be firm as the impact of the delay of

overseas economies is expected to be limited."

     --"The BOJ's projection for overseas economies doesn't assume further

deceleration. However, this outlook is based on the assumption that the trade

friction will not intensify further."

     --"There also are uncertainties such as over development in emerging

economies and geopolitical risks. Moreover, attention should be paid to the fact

that global financial markets have become more reactive to these risks."

     --"If such downward risks materialize, positive behavior by firms could

become cautious. Besides risks concerning overseas economies, the impact of the

consumption tax hike continue to warrant attention."

     --"As I have explained, although the degree appears to be small for now,

the BOJ will continue to conduct a careful examination of the impact, including

that on consumer sentiment." 

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

--MNI Sydney Bureau; +61 405322399; email: lachlan.colquhoun.ext@marketnews.com

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