*
BOJ in no rush to tweak policy given overseas risks -
sources
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No change expected to guidance pledging to keep low rates
*
BOJ may remove reference to COVID impact, most likely in
June
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New governor Ueda to chair first BOJ meeting on April
27-28
(Adds detail on forward guidance, BOJ policy)
By Leika Kihara and Takahiko Wada
TOKYO, April 21 (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.
New Governor Kazuo Ueda, who will be chairing his first
policy meeting, has stressed the need to keep monetary policy
ultra-loose to ensure inflation sustainably hits the bank's 2%
target.
The sources said that at next week's meeting the BOJ is also
likely to make no major tweaks to its forward guidance,
including its pledge to keep interest rates at "current or
lower" levels.
Some in the BOJ see scope to change a separate line of
guidance that commits it to ramp up stimulus as needed "with an
eye on the economic impact of the COVID-19 pandemic," they said.
With Japan having already scrapped its COVID-related curbs,
the BOJ will likely remove reference to the pandemic's fallout
in coming months, most likely at the meeting in June, the
sources said.
But such a change is unlikely to signal any shift in the
BOJ's accommodative policy bias, they said.
Japan's core consumer inflation hit 3.1% in March, well
above the BOJ's target, as companies continued to pass on higher
raw material costs to households.
The central bank will scrutinise that and other data in
coming up with fresh quarterly growth and inflation forecasts,
set for release after next week's policy meeting.
(Reporting by Leika Kihara and Takahiko Wada; Editing by
Chang-Ran Kim, John Stonestreet and Hugh Lawson)
