By Leika Kihara and Takahiko Wada
TOKYO (Reuters) – The Bank of Japan is expected to maintain its ultra-easy monetary policy, including its interest rate targets and a 0.5% cap set for the 10-year government bond yield, at next week’s rate review, said four sources familiar with its thinking.
At the two-day review ending on April 28, the central bank will also likely leave unchanged its forward guidance pledging to keep interest rates ultra-low, they said.
While wages are rising and inflationary pressure is building, the BOJ is in no rush to dial back stimulus given risks of slowing overseas growth and uncertainty on whether wage rises will be sustained next year, the sources said on condition of anonymity due to the sensitivity of the matter.
“With inflation yet to sustainably hit its target, the BOJ can be patient” in contemplating tweaks to yield curve control, one of the sources said, a view echoed by two other sources.
Under yield curve control (YCC), the BOJ guides short-term interest rates at -0.1% and the 10-year bond yield around zero with an implicit cap of 0.5%.
With inflation exceeding its 2% target, investors have speculated that the BOJ will soon phase out or end YCC, which some argue has distorted bond market pricing and crushed financial institutions’ profits.
(Reporting by Leika Kihara and Takahiko Wada; Editing by Chang-Ran Kim and John Stonestreet)
