*
Japan's trend inflation showing some positive signs - Gov
Ueda
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BOJ will end YCC then shrink balance sheet when conditions
met
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Scheduled review won't bind BOJ's monetary policy moves -
Ueda
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No pre-set idea on how review could affect future policy
moves
(Adds Ueda's quotes on policy review)
By Leika Kihara
TOKYO, May 9 (Reuters) - Bank of Japan (BOJ) Governor
Kazuo Ueda said on Tuesday the central bank will end its yield
curve control policy and then start shrinking its balance sheet,
once prospects heighten for inflation to sustainably hit its 2%
target.
Speaking in parliament, Ueda said Japan's economy was
picking up and inflation expectations remain at high levels.
"We're seeing some positive signs in trend inflation,
including inflation expectations," the BOJ chief said.
"When we can foresee inflation sustainably and stably
meeting our 2% target, we will abandon yield curve control and
then move towards shrinking the bank's balance sheet."
Ueda, however, warned of various uncertainties on the
outlook such as whether recent strong wage growth will be
sustained, and spread to smaller firms.
Under yield curve control (YCC), the BOJ sets a short-term
interest rate target of -0.1% and caps the 10-year bond yield
around zero as part of efforts to durably hit its price goal.
With inflation exceeding the BOJ's target, markets are rife
with speculation that Ueda will soon phase out YCC, which has
drawn public criticism for distorting market pricing and
crushing bank profits.
Ueda has repeatedly ruled out an immediate interest rate
hike on the view the recent rise in inflation was driven mostly
by rising import costs, rather than strong domestic demand.
But at the first meeting since Ueda became governor last
month, the BOJ removed a policy guidance pledging to keep
interest rates at "current or lower levels."
It also announced a plan to review its past monetary policy
moves, laying the groundwork to gradually phase out his
predecessor's massive stimulus programme.
Ueda said the review will scrutinise the benefits and side
effects of past monetary policy, including by conducting
workshops with private academics.
He also said the central bank did not have any pre-set idea
on how the review could affect its future monetary policy
decisions.
"We will take necessary policy steps at each of our rate
reviews, with an eye on financial and price developments, even
while we conduct the review," Ueda said.
Japan's core consumer inflation hit 3.1% in March, well
above the central bank's target, and an index excluding fuel
costs rose at the fastest annual pace in four decades in a sign
of broadening price pressure.
(Reporting by Leika Kihara; Editing by Himani Sarkar, Shri
Navaratnam and Lincoln Feast)
