UPDATE2: BOJ Kuroda: Far From 2% CPI, To Keep Easy Policy

--Adds Comments From Briefing in Paragraphs 7-15

     OSAKA, Japan (MNI) - Bank of Japan Governor Haruhiko Kuroda repeated the

central bank's mantra Monday that the economy is still far from reaching the

bank's 2% inflation target, which requires continued large-scale monetary

stimulus.

     In a speech to business leaders in Osaka City, western Japan, Kuroda said,

"Central banks in major economies are currently conducting monetary policy with

the aim of achieving around 2% inflation."

     "Given this, the Bank of Japan's monetary policy, which is being conducted

with the aim of achieving 2% inflation, is also likely to contribute to stable

foreign exchange rates in the long run."

     BOJ officials believe that if Japan were to lower its inflation target from

the 2% Kuroda sees as a global standard, it would raise the notion that the BOJ

would not need to provide so much monetary stimulus, which could cause an

unwanted rise in the yen while Japan is still struggling to turn around the

deflationary mindset prevalent among consumers and businesses.

     "Although there is still a long way to go to achieve the price stability

target of 2%, the BOJ will continue to persistently pursue powerful monetary

easing with a view to achieving the target at the earliest possible time," he

said.

     Kuroda stressed the need for the BOJ to maintain its 2% inflation target,

noting there is an upward bias in price statistics and the economy needs a

safety margin to avoid slipping back into deflation.

     Later, Kuroda told reporters that aiming for stable 2% inflation is

effective in stabilizing foreign exchange rates as the central banks in other

industrialized nations are also trying to anchor inflation around 2%.

     "The 2% target is appropriate and it is effective in stabilizing foreign

exchange rates," he said.

     Asked about side-effects of the BOJ's aggressive easing launched more than

four years ago and the U.S. move to unwind easing, Kuroda replied, "It is

premature to discuss an exit strategy of easing or adjust our easy policy."

     "Each central bank is conducting its own monetary policy based on

individual economic and financial conditions," Kuroda said.

     Kuroda made a rare reference to the BOJ's past policy shift.

     "Ending the zero rate policy and raising interest rates in 2006 was

premature," he said.

     When the BOJ changed its policy framework to again target short-term

interest rates in March 2006, many BOJ officials believed the central bank

should be able to conduct four 0.25 percentage rate hikes in the coming few

years. The first rate hike under the new policy framework at the time, from zero

to 0.25%, was decided in July 2006.

     Kuroda declined comment on Prime Minister Shinzo Abe's plan to use the

sales tax hike now planned in October 2019 to fund his latest project of

providing free high school and university education instead of helping to make

public medical and pension plans more sustainable.

     Economists said Abe's move is expected to further delay the process of

fiscal consolidation.

     At its previous policy meeting on Sept. 20-21, the BOJ board decided in an

8-to1 vote to maintain its current monetary easing stance under the yield curve

control framework it adopted about a year ago.

     One of the two new board members, Goushi Kataoka, dissented, arguing

current policy was insufficient to meet the central bank's 2% policy goal by the

current target date of sometime in fiscal 2019, according to the BOJ's policy

statement following its meeting. Kataoka didn't make any counter-proposal.

     In July, the BOJ pushed back the timeframe for hitting the 2% inflation

target to "around fiscal 2019" from the previous estimate of "around fiscal

2018." It was the sixth delay since the bank began aggressive easing in April

2013.

     Kataoka also opposed the description of the board's inflation outlook.

     In his speech, Kuroda acknowledged domestic prices have been weak when

measured by the "core-core" CPI excluding fresh food and energy, which has been

around zero percent year-on-year.

     But the governor remains optimistic, saying, "Given that firms have already

been working on streamlining their business processes in many ways, it will

gradually become difficult for them to continue to absorb increases in wage

costs through those measures."

     "In addition to continuing efforts to streamline their business processes,

firms will need to reflect in their sales prices the increased costs that they

cannot absorb," he said.

     He expects more firms will follow the lead of firms that have already

raised retail prices for goods and services.

     "It is highly likely that, facing a tight labor market, every firm feels

that it has been reaching the limit of what it can absorb in increasing labor

costs." Kuroda said.

     On the consumer side, the perception of price rises seems to be changing

gradually, as the employment and income conditions have improved, he said.

     As the economy continues to expand moderately, firms' attempts to raise

sales prices will likely gradually become more widespread across a broad range

of industries, he predicted.

     "Furthermore, as this process lifts actual prices, firms' and households'

medium- to long-term inflation expectations, or people's perception of future

inflation, will increase."

     During the question and answer session, Kuroda said, "The BOJ ... continues

to carefully watch developments in geopolitical risks concerning North Korea and

their impact on Japan's economy and financial markets."

     "We would take policy action, if necessary," Kuroda said but didn't

elaborate on how or when the BOJ might consider adding more monetary stimulus if

geopolitical risks materialize.

     Asked about the currency market, Kuroda said, "Foreign exchange rates

should move, reflecting economic fundamentals. This (view) is shared by the G-7

nations."

     "Rapid movements of foreign exchange rates would have adverse impact" on

economic growth and prices, he said.

--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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