BOJ's Forecasts Must Be Quite Strong to Consider Tweaking YCC-Gov Ueda

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TOKYO, Japan (Reuters) – Bank of Japan Governor Kazuo Eeda stated on Monday that the central bank’s inflation forecasts for the next year must be “quite strong” and "close to 2%", in order to tweak the yield curve control.

Ueda, a member of the Japanese parliament, said: "At this time, trend inflation exceeds 2%. Therefore we must continue monetary easing." He added that when the BOJ's trend inflation projections reach 2%, it will be necessary to normalise its monetary policy.

He said that while companies are passing on higher import costs to consumers faster than expected, Japan’s inflation will peak and then slow down to below the BOJ’s 2% target by the end of this fiscal year, ending March 2024.

"The BOJ must have strong forecasts for trend inflation in the next half-year, year and year-and-ahalf ahead. They should be close to 2%." "We also need to judge the likelihood that the forecasts will materialise is high," Ueda replied when an opposition legislator asked him to clarify the conditions of tweaking yield-curve control.

The BOJ uses yield curve control to set short-term rates at a negative 0.1% and the yield on 10-year bonds around zero, with an implicit ceiling of 0.5%.

Ueda refused to say how the BOJ would phase out YCC. He said that it would depend on many factors, including the economic climate, inflation rate and other factors.

Ueda's comments on the BOJ exit strategy were "I can't tell you how to do it at this time."

Ueda made his comments ahead of the BOJ's two-day policy meeting, which begins on Thursday. The board will present new quarterly growth and inflation predictions.

Sources told Reuters that the BOJ will likely maintain its ultra-easy monetary policies at the first rate review, which Ueda is expected to chair. Ueda assumed his post in April.