BOJ debated risk of being too late in raising rates at April meeting

By Leika Kihara

(Reuters) -Bank of Japan (BOJ) policymakers agreed to keep ultra-low interest rates at Governor Kazuo Ueda’s debut meeting but some saw the need to avoid being too late in raising interest rates, minutes of the April rate review showed on Wednesday.

While Japan was making progress toward achieving the BOJ’s 2% inflation target, the nine-member board saw the need to maintain ultra-loose policy given uncertainty over the global economy and the wage outlook, the minutes showed.

But one member said the BOJ must ensure its policy “does not fall behind the curve,” as wages and inflation were already showing signs of accelerating.

Another member said the BOJ must avoid a situation where it had to make abrupt changes to interest rates, as that would cause huge disruptions to businesses accustomed to extremely low interest rates.

“The BOJ must humbly monitor price and wage developments, and respond not too quickly, but also not too slowly” the second member said.

At the April meeting, the BOJ made no changes to its yield curve control (YCC) policy including the -0.1% short-term interest rate target and the implicit 0.5% cap for the 10-year bond yield.

Many members saw no need to tweak the operational conduct of YCC, arguing that distortions in the yield curve seen in the past had been on the mend, the minutes showed.

But one member said the BOJ could consider revising the conduct of YCC, as many market players were complaining that the functioning of Japanese government bond (JGB) market remained low, according to the minutes.

“On this basis, the member said that yield curve control seemed, in some aspects, to have hampered smooth financing and the bank could consider revising its conduct at this time. However, it was appropriate to wait and see a little longer in light of the situation in global financial markets,” it said.

The BOJ does not disclose the identity of the members who made the comments at the minutes. Earlier this year, however, board member Naoki Tamura publicly called for the need to assess the pros and cons of YCC.

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