*
BOJ will respond, such as via rate hike, if inflation
overshoots
*
At present, BOJ deems it appropriate to keep YCC intact
*
Tightening policy now could push down already-slowing
inflation
*
Ueda to chair his first BOJ meeting, decision due Friday
(Adds Ueda's comments on the lag of monetary policy effect)
By Leika Kihara
TOKYO, April 25 (Reuters) - Bank of Japan (BOJ) Governor
Kazuo Ueda on Tuesday stressed the need to keep monetary policy
ultra-loose for now, but signalled the chance of raising
interest rates if inflation and wage growth overshot
expectations.
"In light of current economic, price and financial
developments, it's appropriate to maintain monetary easing, now
conducted through yield curve control," Ueda told parliament.
The shape of Japan's bond yield curve has normalised due in
part to falling global yields, Ueda said, when asked by an
opposition lawmaker about the demerits of prolonged monetary
easing.
Ueda reiterated the need to keep Japan's monetary policy
loose to achieve the BOJ's 2% inflation target in a sustainable,
stable fashion accompanied by wage hikes.
"But if wage growth and inflation accelerates faster than
expected and warrants tightening monetary policy, the BOJ stands
ready to respond such as by raising interest rates," he said.
Ueda's comments come ahead of the BOJ's two-day policy
meeting that kicks off on Thursday, which will be the first
meeting he chairs since taking the helm earlier this month.
At the meeting, the BOJ is expected to keep unchanged its
monetary settings and dovish policy guidance to support a
fragile economic recovery and budding signs of wage growth.
Markets are rife with speculation Ueda will steer the BOJ
toward phasing out his predecessor Haruhiko Kuroda's massive
stimulus, which drew criticism for distorting market pricing and
crushing financial institutions' profits.
In a sign he was in no rush to hike rates, Ueda said
tightening monetary policy now could push down future inflation,
which is already seen slowing as import costs peak.
"We could see inflation further undershoot expectations,
which would be very worrying," Ueda said.
The BOJ must guide policy keeping in mind that it takes a
long time for changes in monetary settings to affect demand and
prices, he added.
"We see the risk of inflation undershooting forecasts as
bigger than the risk of overshooting," he said, stressing the
need to maintain the BOJ's massive stimulus for now.
Under yield curve control (YCC), the BOJ guides short-term
rates at -0.1% and the 10-year bond yield around 0% with an
implicit cap set at 0.5%.
(Reporting by Leika Kihara; Editing by Christopher Cushing and
Sam Holmes)
