By Leika Kihara
TOKYO, April 24 (Reuters) – Bank of Japan (BOJ) Governor Kazuo Ueda said on Monday that the central bank’s inflation forecasts need to be “pretty robust and close to 2%” in the coming year to consider the possibility of modifying the yield curve control (YCC).
“Currently, trend inflation is below 2%, so we need to maintain monetary easing,” Ueda told parliament. “But when trend inflation is forecast to reach 2%, the Bank of Japan should normalize monetary policy,” he added.
Although businesses are passing on higher import costs to consumers more than expected, Japanese inflation is likely to peak soon and slow again below the Bank of Japan’s 2% target in the second half. of the current fiscal year, which ends in March 2024, he said.
“The Bank of Japan forecasts for the inflation trend half a year, one year and a year and a half ahead should be quite robust and close to 2%. We also have to judge that the probability of the forecasts coming to fruition is high. Ueda said when asked by an opposition lawmaker to clarify the conditions for changing yield curve control.
Under yield curve control, the Bank of Japan guides short-term interest rates at -0.1% and the 10-year bond yield at around zero, with an implicit cap of 0.5% .
Ueda declined to specify how the Bank of Japan might phase out the YCC, saying that would depend on the economy, the pace of inflation and many other factors at the time.
“At the moment, I can’t say how it could be done,” Ueda said of the BOJ’s exit strategy.
Ueda’s comments come ahead of a two-day BOJ monetary policy meeting starting Thursday, at which the board will produce new quarterly forecasts for growth and inflation.
Some sources have told Reuters that the Bank of Japan is likely to maintain its ultra-easy monetary policy in the first rate review chaired by Ueda, who took office in April.
(Reporting by Leika Kihara; Editing by Shri Navaratnam and Simon Cameron-Moore, Spanish editing by José Muñoz)
