*
Inflation must be close to 2% convincingly to debate exit
- Ueda
*
BOJ may discuss idea of disclosing exit strategy in
advance
*
Import prices, inflation likely nearing peak, seen slowing
ahead
*
Ueda to chair 1st BOJ policy meeting, decision due Friday
(Adds comments on exit strategy, ETF holdings)
By Leika Kihara
TOKYO, April 24 (Reuters) - Bank of Japan Governor Kazuo
Ueda said on Monday the central bank's inflation forecasts must
be "quite strong and close to 2%" in the coming year to consider
tweaking yield curve control.
"At present, trend inflation is below 2% so we must maintain
monetary easing," Ueda told parliament. "But when trend
inflation is projected to reach 2%, the BOJ must normalise
monetary policy," he added.
Ueda's comments come ahead of a two-day BOJ policy meeting
that kicks off on Thursday, where the board will produce fresh
quarterly growth and inflation forecasts.
Sources have told Reuters the BOJ is likely to maintain its
ultra-easy monetary policy at the first rate review to be
chaired by Ueda, who assumed the post in April.
While companies are passing on rising import costs to
consumers more than expected, Japan's inflation is likely to
peak soon and slow back below the BOJ's 2% target in the latter
half of the current fiscal year ending in March 2024, he said.
"The BOJ's forecasts of trend inflation for half a year, one
year and one-and-a-half years ahead must be quite strong and
close to 2%. We also need to judge that the likelihood of the
forecasts materialising is high," Ueda said when asked by an
opposition lawmaker to clarify the conditions for tweaking yield
curve control.
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%.
Ueda declined to specify how the BOJ might phase out YCC,
saying that would depend on the economy, the pace of inflation
and many other factors at the time.
"At present, I can't say how this could be done," Ueda said
on the BOJ's exit strategy.
But Ueda said he will consider the idea of disclosing in
advance the BOJ's exit strategy from ultra-loose policy, when
the right timing to do so arrives.
"The BOJ has already been conducting many estimates on how a
normalisation of monetary policy could affect its finances," he
said.
How to unload the BOJ's huge holdings of exchange-traded
funds (ETF), accumulated through its heavy asset buying to fire
up inflation, will be among key challenges the bank will debate
when it considers ending ultra-loose monetary policy, Ueda said.
(Reporting by Leika Kihara
Editing by Shri Navaratnam & Simon Cameron-Moore)
