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The Bank of Japan (BOJ) will conduct a thorough review of its past monetary easing measures and revise its guidance for the future policy path, the Nikkei newspaper reported on Friday. The news is based on reliable information from Reuters.com. Although the central bank is widely expected to maintain its yield curve control (YCC) at a stable level, any move in that direction could signal Governor Kazuo Ueda's renewed intention to gradually move away from long-standing ultra-low interest rates. In its review, the BOJ will evaluate the effectiveness and side effects of its monetary easing measures, and use the findings to guide future policy implementation, the Nikkei reported without citing sources. The yield on the benchmark 10-year Japanese government bond (JGB) rose briefly to 0.465% on Friday, while the dollar briefly fell to 133.60 yen from around 134 yen after the report. Sources contacted by Reuters said the BOJ could conduct a review of the long-term impact of its monetary policy measures, an idea recently proposed by Ueda, and remove references to COVID-19 in future policy guidance. The board could also change a pledge in one of its guidelines to take additional monetary easing steps “without hesitation” given the impact of the pandemic, the sources said. At the meeting chaired by Ueda, who has been in office for just three weeks, the BOJ is expected to maintain its short-term interest rate target of -0.1% and a pledge to guide the 10-year bond yield around zero under its YCC policy. Future policy guidance, or promises made by the central bank, is likely to be a key tool for Ueda. As a BOJ board member, Ueda helped shape the bank’s first guidance in 1999, promising to keep interest rates at zero until deflation was overcome. Improving the BOJ’s communication with markets could be the first task for former academic Ueda to distinguish himself from his predecessor Haruhiko Kuroda, some analysts say. However, rising inflation pressures could test Ueda’s communication skills by threatening the BOJ’s argument that price pressures fueled by recent cost increases will soon ease. Core consumer inflation in Tokyo hit 3.5% in April, beating expectations and the BOJ’s 2% target, while a price index excluding energy rose at the fastest pace in four decades, data showed on Friday. Much depends on how the BOJ manages the transition away from Kuroda’s loose policy, as global investors worry that higher Japanese interest rates could trigger capital outflows and unpredictably affect financial markets. The BOJ has maintained an implicit 0.5% cap on its 10-year bond yield, but the policy has drawn criticism that it can distort the shape of the yield curve and drain bond market liquidity. That has raised expectations that BOJ Governor Kazuo Ueda will soon scrap the yield curve control (YCC) policy. The International Monetary Fund has been pushing the BOJ to allow longer-run yields to move more flexibly around its target with adjustments to its YCC policy, making it easier to exit from monetary easing in the future. In addition to Ueda’s comments, clues about the policy outlook could come from the BOJ’s quarterly growth and inflation projections due on Friday. The report will include projections through fiscal 2025 that will show the BOJ’s view on the balance between challenges from slowing global growth and signs of expanding wage growth. Analysts expect the report to provide insight into the BOJ’s future monetary policy direction. Based on projections made in January, the Bank of Japan (BOJ) expects core consumer inflation to come in at 1.6% this year and 1.8% in fiscal 2024. The BOJ also expects economic growth to come in at 1.7% this fiscal year before slowing to 1.1% next year. Many analysts expect the BOJ to project inflation close to, but still slightly below, the bank’s 2% target for fiscal 2024 and 2025.
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