*
BOJ must conduct assessment of its policy at some point -
Tamura
*
BOJ will weigh pros, cons in deciding March move - Tamura
*
Bond function deterioration has not been fixed - Tamura
*
Tamura seen as among those in board more keen to phase out
YCC
(Adds quotes from news conference)
By Leika Kihara and Takahiko Wada
TOKYO/MAEBASHI, Japan, Feb 22 (Reuters) - Bank of Japan
(BOJ) board member Naoki Tamura on Wednesday warned of the risk
of an overshoot in inflation and said the timing of an end to
ultra-loose monetary policy will depend on economic, price and
wage developments ahead.
He also said the central bank will weigh the pros and cons
of its current policy framework, in deciding whether to take
additional steps at its next meeting in March in response to the
market's breach of its 10-year bond yield cap.
"It's true that at present, the deterioration seen in bond
market function has not been fixed," Tamura, a former commercial
banker, told a news conference in the Japanese city of Maebashi.
"We'll take into account economic, price and wage
developments at the time" in determining the timing for
normalising monetary policy, he added.
The remarks came amid heightening market expectations that
recent rises in inflation will prod the BOJ to end its yield
curve control (YCC) policy and begin hiking interest rates when
dovish incumbent Governor Haruhiko Kuroda's term ends in April.
Kazuo Ueda, an academic nominated by the government as
Kuroda's successor, will speak in parliament on Friday and next
Monday, giving markets their first glimpse of his views on how
soon the BOJ could phase out YCC.
In a speech delivered earlier in the day, Tamura repeated
his view that the BOJ must at some point conduct a comprehensive
assessment of its monetary policy framework by weighing the
benefits of costs of current ultra-loose policy.
While stressing the need to maintain accommodative policy
for now, Tamura said inflation could overshoot initial forecasts
with services prices perking up and a growing number of
companies passing on rising raw material costs to households.
He also said prolonged ultra-low interest rates may be
hampering innovation and preventing Japan's productivity from
heightening.
Under YCC, the BOJ guides short-term interest rates at -0.1%
and the 10-year bond yield around zero as part of efforts to
sustainably achieve its 2% inflation target.
Facing pressure from rising global interest rates, the BOJ
was forced to raise in December the implicit cap for its 10-year
yield target to 0.5% from 0.25% - a move that fuelled market
expectations of a near-term tweak to YCC.
With the 10-year bond yield breaching the 0.5% cap, the
central bank said on Wednesday it would conduct emergency bond
purchases to fend off a renewed market attack on YCC.
"At this stage, it's important to follow carefully and
humbly how markets would stabilise and to what extent market
functions will improve," Tamura said in the speech.
(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman
and Sam Holmes)
