Veteran BOJ watcher predicts hawkish tweak to central bank’s guidance

TOKYO (Reuters) – The Bank of Japan (BOJ) will give a slightly hawkish tilt to its guidance on the future path of monetary policy by phasing out a pledge to ramp up stimulus if needed, Naomi Muguruma, a veteran analyst well-versed in the bank’s policy, said on Thursday.

The tweak could come at the central bank’s policy meeting this month, Muguruma wrote in a research note, having initially expected the tweak to be made in July.

The projection by Muguruma, a prominent BOJ watcher who has closely tracked its policy for years, comes despite reassurances by Governor Haruhiko Kuroda that the BOJ is in no rush to follow in the footsteps of other central banks in withdrawing stimulus.

Under the current guidance, the BOJ says it “won’t hesitate to take additional easing steps,” and expects short- and long-term policy interest rates to “remain at their present or lower levels.”

The central bank will likely change the guidance to say it will “maintain short- and long-term rates at current levels for the time being,” Muguruma said.

The tweak could help slow the pace of yen declines by making the BOJ’s policy outlook appear somewhat less dovish than before, she said.

“With the yen sliding to 20-year lows against the dollar, there’s no need to stick to a guidance that eyes a possible deepening of negative interest rates,” Muguruma said.

Under a policy dubbed yield curve control, the BOJ pledges to guide short-term rates at -0.1% and cap the 10-year bond yield around 0% to support growth through low borrowing costs.

With inflation still subdued and the economy weak, the BOJ has repeatedly said it will keep monetary policy ultra-low. The Federal Reserve’s aggressive rate hike plans has widened the interest rate differential, pushing the yen to a two-decade low against the dollar.

The BOJ next meets for a policy meeting on April 27-28.

(Reporting by Leika Kihara; Editing by Simon Cameron-Moore)