ANALYST VIEW-BOJ cuts growth outlook, ups inflation view

TOKYO (Reuters) - Japan's central bank cut sharply its growth outlook and raised its inflation forecast on Wednesday, warning of highly uncertain times as industrial output figures painted a gloomy picture of how the credit crisis is hitting the world's No.2 economy.

The Bank of Japan cut its growth forecast for the year to March 2009 to 1.5 percent from a pick of 2.1 percent in its previous half-yearly economic report in October. It almost tripled its forecast for consumer price inflation to 1.1 percent in the year to next March, from 0.4 percent.

The BOJ kept its key overnight call rate target unchanged at 0.5 percent as widely expected at a policy meeting on Wednesday.

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COMMENTARY:

JOSEPH KRAFT, HEAD OF CAPITAL MARKETS JAPAN, DRESDNER

KLEINWORT

"The BOJ's outlook report was as expected, and the policy bias was brought to neutral from a tightening mode. With this, any expectation for a rate hike was removed completely.

"The BOJ is unlikely to move to raise interest rates until it confirms stability in the U.S. economy."

AKITO FUKUNAGA, FIXED INCOME STRATEGIST FOR CREDIT SUISSE

"The forecast numbers for GDP and CPI are not very surprising, and I do not think the wording contained any major surprises for the market either. "But the report seems to have provided timing for the market to retreat from recent levels that had seemed to factor in the possibility of a rate rise in the near term.

"I do not get the sense that the contents of the report were excessively dovish."

KENRO KAWANO, SENIOR INTEREST-RATE STRATEGIST, CREDIT SUISSE:

"The BOJ would like to see economic and market developments for the next six months or so and maybe even beyond this fiscal year. I don't foresee a BOJ move. In this report, the BOJ said it does not see a particular direction for interest rates. This is rather dovish when compared to the last report. What the BOJ does next totally depends on the economic developments."

TOMOYUKI ARIMA, SENIOR JGB DEALER, TOKAI TOKYO SECURITIES

"The growth projection for next fiscal year appears to be on the cautious side while the consumer price outlook for 2009/10 could have been a bit higher, in light of current market sentiment."

GLENN MAGUIRE, ASIA-PACIFIC CHIEF ECONOMIST, SOCIETE

GENERALE, HONG KONG, IN A RESEARCH NOTE:

"The most exciting thing about the bank's semi-annual statement is the addition of new risk balance charts. Rather than simply providing point forecasts for the economy in 2008 and 2009 (these are still produced as the central forecasts), the policy board members have also been asked to provide probability distributions around their central forecasts. These are then aggregated and divided by the number of policy board members (i.e. averaged).

"The probability distributions are the most eloquent illustration of the bank's policy stance. The bank is clearly saying that the risks are skewed to growth and inflation being lower than their already modest forecasts. These are the very conditions in which the dove's on the policy board will be in the ascendant. With the FOMC perhaps making a 'one and done' policy move tonight, the probability of an easing from the Bank of Japan will clearly be reduced. However, the downside risks to growth and inflation may prompt dissension for a rate cut at coming meetings. At the very least, rate hikes will remain off the BOJ's agenda until will into FY2009."

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BACKGROUND:

-- The government forecast 2.0 percent growth in GDP in price-adjusted real-terms for the current fiscal year started in April.

(Reporting by Tokyo bureau)