October 31, 2018 / 6:48 AM / 15 days ago

HIGHLIGHTS-BOJ Governor Kuroda's comments at news conference

TOKYO, Oct 31 (Reuters) - The Bank of Japan kept monetary policy steady on Wednesday and slightly trimmed its inflation forecasts as global trade frictions clouded the outlook, reinforcing views the central bank is in no rush to trim its massive stimulus.

But the BOJ issued a slightly stronger warning on financial vulnerabilities than it did three months ago, reflecting growing concerns that years of ultra-low rates were hurting bank profits and could discourage them from increasing lending.

Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:

ON SINO-U.S. TRADE FRICTIONS, IMPACT ON JAPAN’S ECONOMY

“Protectionist policies would affect not just the countries involved but global economies through supply chains. There has been some weak data on China’s investment and there could be some effect from the U.S. tariffs. But we expect China’s economy to maintain stable growth, as authorities are taking fiscal and monetary measures.”

“As for the impact on Japan’s economy, it has been limited so far. But companies are saying that it was hard to assess the impact now. If the frictions persist, this could affect business sentiment.” ON WHETHER STEPS TAKEN IN JULY HAVE HELPED REVIVE BOND MARKET ACTIVITY

“Market functions have improved somewhat. But yield curve control (YCC) is a policy that aims to reflate growth by keeping short- and long-term interest rates low, so would curtail market functions to some extent.”

“We will carefully watch market developments to make sure the demerits (of YCC) do not become too big and diminish the positive effects.” ON INFLATION FORECAST DOWNGRADE

“There’s no change to our general view on the price outlook ... The momentum (for achieving 2 percent inflation) is sustained.” ON WHAT STEPS THE BOJ COULD TAKE TO IMPROVE MARKET FUNCTIONS

“I’m not worried that market functions will deteriorate further. But depending on economic, price and financial developments, there could be cases where this becomes an issue. If so, we’re ready to take appropriate steps as needed.”

ON U.S. TREASURY SECRETARY STEVEN MNUCHIN’S REMARKS SUGGESTING THAT WASHINGTON WILL SEEK TO INCLUDE A CURRENCY PROVISION IN TRADE TALKS WITH JAPAN

“The BOJ’s ultra-easy policy is aimed at achieving 2 percent inflation, not at affecting currency rates.”

ASKED WHAT TOOLS THE BOJ HAS AVAILABLE IF RISKS THREATEN JAPAN’S ECONOMY

“It’s true there are downside risks to the outlook and most of them are driven by external factors. If such risks turn out to have a big impact on Japan’s economy, prices and markets, we will of course take monetary policy action.”

“We have various means available, such as cutting interest rates, expanding monetary base and ramping up asset purchases.”

ON THE BOJ’S VIEW ON FINANCIAL SYSTEM RISKS

“We are debating various side effects of our policies, such as those mentioned in our financial system report. It’s important that we maintain financial system stability, which is a key channel for the effect of our monetary policy to translate into the economy and prices. As such, we’ll monitor developments carefully.”

“Regional banks have sufficient capital and liquidity, so there won’t be any immediate problems. But in the long run, there could be some impact. There could be damage to financial intermediation, which could mean regional banks may not be able to lend as much or could begin taking on excessive risk. Either could happen, so are potential risks.”

ON WHETHER THE BOJ COULD TAKE STEPS TO EASE STRAINS ON THE FINANCIAL SYSTEM

“We have absolutely no plan to change our zero percent target for 10-year government bond yields. There is also speculation that the BOJ could change the band (for which it allows yields to move) but we have no such plans now.”

“There could be times ahead where we would need to consider various steps. But for now, we have no pre-set plans in the works to address market function problems... The biggest goal of monetary policy is to achieve 2 percent inflation at the earliest and we would take necessary and sufficient steps for this purpose.” (Reporting by Leika Kihara; Editing by Subhranshu Sahu)

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