A Bank of Japan policy board member sought an early discussion over revising the bank’s yield curve control, saying the cost of sticking with the measure is high, according to a summary of views from the June meeting.
The central bank should maintain its monetary stimulus for now, since the cost of waiting to achieve sustainable 2% inflation is low for the BOJ’s overall easing program, the member said.
But from the perspective of improving market functioning, communication with investors and preventing sharp moves in interest rates when the BOJ exits its current monetary easing, using yield curve control is costly, the member said.
The summary showed a mixed exchange over the bank’s ongoing grip on yields with one board member saying there’s no need to revise YCC as distortions in the curve have eased and market functioning has improved.
Still, the comment from the other member is the clearest indication since a yield cap tweak in December that YCC should be viewed separately as a tool of easing.
At the meeting on June 15-16, the BOJ stuck with stimulus as it opted to wait for signs of more sustainable inflation. BOJ Governor Kazuo Ueda has repeatedly said the bank’s core inflation measure is expected to slow below 2% toward the middle of the current fiscal year ending in March, meaning that stimulus needs to stay in place to anchor it above the target.
In the summary of opinions, one member said inflation is likely to slow toward the middle of the current fiscal year, but may not fall below 2%. One member also said inflation may deviate upward from the baseline scenario as corporate stance has shifted toward raising their selling prices.
Inflation slowed less than expected in May to 3.2%, an outcome that adds to the view the BOJ will increase its price forecasts in July.
Many economists are flagging that the central bank’s inflation forecast for this fiscal year of 1.8% is too low and needs to be raised. While most BOJ watchers don’t expect any major policy change for some time to come, a third of them surveyed in June said they see tweaks likely in July.
