UPDATE: POLICY: BOJ Funo: Must Prevent Loss Of Price Momentum

--Adds Comments From Briefing in Paragraphs 5-12

     MATSUE, Japan (MNI) - The Bank of Japan must be pre-emptive in its actions

to stop any risk of losing the momentum toward achieving its price stability

target, board member Yukitoshi Funo said Thursday.

     "The slowdown in overseas economies continues and downside risks to global

economy is increasing. The current situation warrants for the BOJ to pay more

attention to the risk that the momentum will be lost," Funo is speaking to

business leaders in Matsue City.

     He added, "We will re-examine developments of economic activity and prices

at the next policy-setting meeting, keeping the current conditions in mind."

     Funo cited lowering the short- and/or long-term policy interest rates,

expanding asset purchases and accelerating the pace of injecting monetary base,

and all a possibility as future policy option, although he didn't expand on what

all possibilities could mean.

     He added, "The BOJ will not hesitate to conduct additional easy policy if

there is a high risk that the momentum toward achieving the price stability

target."

     "The next policy-setting meeting (scheduled for Oct. 30-31) is important."

But there are a few weeks until the next meeting and I continue to carefully

watch developments of economic activity and prices, and the impact of the

U.S.-China trade friction and the slowing Chinese economy on Japan's economy,"

Funo said.

     When asked about how he assesses a worsening of the momentum, Funo said

that he is paying attention to developments of the output gap, a key factor of

determining the momentum toward hitting the price stability target.

     "I'm also keeping a close eye on development of financial markets, such as

stock and foreign exchange rates, and how they will affect economic activity and

prices," Funo said. He added that it will be late for the BOJ to conduct

monetary policy, so the BOJ needs to predict how Japan's economy and prices will

evolve based on market moves, indicating that he supports pre-emptive policy

action.

     As for the results of the BOJ Tankan survey released on Tuesday, Funo said

that the Tankan results showed the virtuous cycle from profits to spending

continues working and the results are consistent with the BOJ assessment that

the economy.

     The timing of a pick-up of the global economy doesn't come in sight now and

it depends on how the U.S.-China trade friction evolves, he said.

     "The BOJ should maintain powerful easy policy in order to achieve price

stability and sustainable economic growth," he added.

     The BOJ left monetary policy unchanged at the September meeting, but vowed

to re-examine economic and price developments in October. 

     Other key points from Funo's speech:

     --It is vital for the BOJ to keep the positive output gap as long as

possible through low interest rates and to maintain the momentum toward hitting

the price stability target.

     --Japan's prices remain weak compared with the tightness of labor market

conditions and a moderate economic growth.

     --Japan's economy will be influenced by the slowdown in overseas economies

for the time being and the BOJ must pay attention to the impact of the

consumption tax hike to 10% from 8% implemented on Tuesday on private

consumption.

     --The BOJ needs to keep a close eye to the possibility that corporate

price-hike stance will be cautious.

--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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