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It is premature for the Bank of Japan to tighten monetary policy, former policy board member Sayuri Shirai said on Thursday, expressing surprise at the central bank's move in July to allow long-term rates to rise more.
The BOJ described the July action as aimed at making its yield curve control (YCC) more sustainable, but markets saw the move as another step towards the central bank dialling back its massive stimulus programme.
The recent increases in inflation were mostly driven by higher import costs rather than wage gains, Shirai told the Reuters Global Markets Forum (GMF), supporting comments made by dovish board member Toyoaki Nakamura earlier on Thursday.
"I think that it's too early. But maybe (Governor Kazuo) Ueda cannot control (it), since BOJ took the first step, everybody talks about more flexibility," Shirai said.
The BOJ's last surprise tweak to its bond yield control came under then Governor Haruhiko Kuroda in December 2022, catching markets by surprise.
Shirai expected another fine-tuning of the YCC tolerance band to plus or minus 1%, from plus or minus 0.5% currently, even before the BOJ begins an exit from its easy monetary policy.
"The sequence should be getting rid of 10-year (yield curve)control. But I think once they get rid of 0% target, they can raise the negative rate to 0%. That makes sense," she added.
Shirai said there was less pressure on the government to intervene to stop the Japanese currency from depreciating this time due to a combination of lower commodity prices and higher equity markets.
Former BOJ board member Takahide Kiuchi told GMF he expected authorities to intervene if the yen continued to trade in the range of 145-150 to the dollar. The yen is currently trading 0.1% higher at 146.07.
"I think government policy is more influenced by consumers' opinions rather than companies, particularly exporters," Kiuchi said, adding that public criticism may intensify again if the yen depreciates further.
(Reporting by Divya Chowdhury and Savio Shetty in Mumbai and Anisha Sircar in Bengaluru; Editing by Alex Richardson)