The BOJ’s Kuroda signaled a tweak to ultra-low interest rates as a future option | Techy Kings

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TOKYO, Nov 2 (Reuters) – Bank of Japan Governor Haruhiko Kuroda said on Wednesday that changes to the central bank’s yield curve control (YCC) policy could be a future option, but ruled it out now.

“If the achievement of our 2% inflation target can be seen, making the control of the yield curve more flexible could be an option,” Kuroda told parliament.

The statement is likely to maintain market expectations of a switch to the central bank’s ultra-low interest rates when dovish Kuroda’s second, five-year term ends in April next year.

Minutes of the BOJ’s September policy meeting showed on Wednesday that central bank policymakers took note of rising inflationary pressures, with one of them urging the need to finally deliver an exit strategy from ultra-loose monetary policy.

Under the YCC, the BOJ guided short-term interest rates at -0.1% and 10-year bond yields around zero as part of efforts to sustainably support inflation to the 2% target.

The BOJ kept the YCC target at its September 22 meeting and its governor Haruhiko Kuroda said interest rates would remain low for “two to three years,” a statement that sent the yen sharply lower and later prompted the government to intervene in currency markets to support the currency.

Many on the nine-member board said the BOJ must maintain very loose monetary policy to ensure wages rise enough and help achieve the bank’s 2% inflation in a sustainable way, the minutes showed.

But some say corporate pricing behavior may change as more firms raise prices with one saying companies are likely to continue raising prices, the minutes show.

“We must humbly observe without any preconceived ideas the risk of inflation exceeding expectations sharply, including from the effects of currency movements,” one expert was quoted as saying.

Japan’s core consumer inflation rate rose to a fresh eight-year high of 3.0% in September, challenging the central bank’s resolve to keep policy very easy as the yen’s fall to a 32-year low continued to raise import costs.

The BOJ’s offer to buy an unlimited amount of bonds to defend the 0.25% cap on the 10-year yield has also raised concerns about the side effects of prolonged easing, such as a distortion in the shape of the yield curve.

“When the time is right, it’s important to communicate with marketing the exit strategy” of the ultra-simple policy, a board member was quoted as saying.

The BOJ remains an outlier among the global wave of central banks tightening monetary policy as it focuses on rebalancing a fragile economy with aggressive stimulus. Kuroda has repeatedly stressed the bank’s determination to maintain very loose monetary policy.

The yen has weakened sharply against the dollar as markets focus on the difference between the BOJ’s ultra-loose policy and US interest rate hikes.

Report by Leica Kihara; Editing by Tom Hogue and Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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