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By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) - Japan's new central bank governor Kazuo Ueda said it was appropriate to maintain the bank's ultra-loose monetary policy for now as inflation has yet to hit 2% as a trend, suggesting he will be in no rush to dial back its massive stimulus.
But Ueda said the Bank of Japan (BOJ) must also avoid being too late in normalizing monetary policy, a sign he will be more open to the idea of tweaking its controversial bond yield control policy than his dovish predecessor Haruhiko Kuroda.
"If the BOJ suddenly realises that inflation will stably and sustainably hit 2% and decides to normalize monetary policy, it will have to make very big policy adjustments," Ueda said in an inaugural news conference on Monday.
"That will cause big disruptions in the economy and markets, so it's important to make pre-emptive and appropriate decisions," he said.
While there are growing signs that Japan can see inflation sustainably heading towards the BOJ's 2% inflation target, more time is needed to scrutinize whether wages will keep rising, he said.
"When looking at current economic, price and financial developments, it's appropriate to maintain yield curve control for now," Ueda said.
The 71-year-old academic's term began on Sunday, succeeding Haruhiko Kuroda, whose second, five-year term ended on Saturday.
Markets have been rife with speculation the BOJ could soon phase out yield curve control (YCC), a policy that caps the 10-year bond yield around zero, due to growing criticism that it distorts markets and hurts banks' margins.
The dollar extended its gains against the yen to hit 133.055, the highest since April 4, on receding expectations of a near-term tweak to Japan's ultra-loose monetary policy.
"Ueda signaled that inflation and economic conditions did not warrant a big rise in interest rates," said Shingo Ide, chief equity strategist at NLI Research Institute. "The chance of a policy tweak in April has diminished significantly," he said.
PRICE TRENDS HOLD KEY
If the BOJ sees that it can achieve its price target, it might need to normalize monetary policy, Ueda said. "If not, we may need to come up with a more sustainable framework with an eye on the side-effects of monetary easing."
Ueda faces a bumpy road as slowing global growth clouds the prospects for a sustained pickup in inflation and wages, a prerequisite for phasing out his predecessor's controversial monetary stimulus.
Growing fears of a U.S. recession are among headwinds for Japan's export-reliant economy. While the end to COVID-19 curbs is propping up consumption, some analysts warn a recent slew of price hikes for daily necessities could also hurt spending.