*
Board saw upside, downside risks to inflation, wages -
minutes
*
Many said distortion in yield curve had not been fixed yet
*
BOJ must keep various options in mind on policy - one
member
*
BOJ kept ultra-low rates, yield curve intact in January
(Adds quotes from minutes, background on BOJ policy)
By Leika Kihara
TOKYO, March 15 (Reuters) - Bank of Japan (BOJ)
policymakers debated the feasibility of making further tweaks to
its bond yield control in January with one member saying it must
keep "various options in mind" on the future policy path,
minutes of its meeting showed on Wednesday.
The nine-member board also agreed inflation and wages could
overshoot expectations, suggesting a phase-out of its massive
stimulus remained on the cards when Kazuo Ueda succeeds
incumbent dovish governor Haruhiko Kuroda next month.
But the board also saw the risk of companies failing to
deliver big enough wage hikes to eradicate the public's deeply
entrenched deflationary mindset, the minutes showed.
"Members agreed there was high uncertainty over companies'
price- and wage-setting behaviour," the minutes said.
At the January meeting, the BOJ maintained its ultra-low
interest rates, including a bond yield cap it was struggling to
defend, defying market expectations it would phase out its
massive stimulus programme amid mounting inflationary pressure.
The board agreed it was premature to exit the ultra-loose
policy, with inflation yet to sustainably achieve the BOJ's 2%
target, according to the minutes of the Jan. 17-18 meeting.
But many board members said distortions in the yield curve,
caused in part by the BOJ's aggressive bond buying to defend its
yield cap, were yet to be fixed, the minutes showed, underlining
their concern over the rising cost of prolonged monetary easing.
"At some point in the future, the BOJ must conduct an
examination of its policy to determine the balance of its
benefits and cost. For now, however, it was appropriate to
maintain monetary easing," one member was quoted as saying.
"The BOJ must keep various options in mind in guiding
monetary policy. But with overseas economies slowing now, it's
inappropriate to rush towards an exit" from ultra-easy policy,
another board member said, according to the minutes.
Under yield curve control (YCC), the BOJ guides short-term
rates at -0.1% and the 10-year bond yield around zero as part of
efforts to sustainably hit its 2% inflation target.
The January meeting was held at a time the BOJ was
struggling to keep the 10-year bond yield from rising above its
0.5% cap, after its decision in December to raise the ceiling
from 0.25% fuelled market expectations of a near-term rate hike.
Instead of tweaking YCC, the BOJ modified its funds-supply
market operation in January to use it as a new tool to prevent
long-term rates from rising too much.
While markets were expecting further modifications to YCC,
making changes again so soon would make the future conduct of
monetary policy unclear, one member was quoted as saying.
"It might be appropriate to scrutinise market functioning
for now, and discuss (whether to change) the conduct of YCC if
necessary," another member said.
(Reporting by Leika Kihara; Editing by Shri Navaratnam and
Muralikumar Anantharaman)
