Incoming Bank of Japan (BOJ) Deputy Governor Shinichi Uchida on Tuesday brushed aside the chance of an immediate overhaul of ultra-loose monetary policy, suggesting that any review of its policy framework could take about a year.
Uchida, a career central banker, said the BOJ should not modify its ultra-easy policy just to address the side-effects of prolonged stimulus such as market distortions caused by the bank's heavy intervention to defend its yield cap.
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"The BOJ must maintain monetary easing. It shouldn't modify easy policy just because there are side-effects. Rather, it must come up with ideas" to mitigate the costs and help sustain stimulus, Uchida told an upper house confirmation hearing.
If the BOJ were to conduct a comprehensive review of its policy framework, it could take one to one-and-a-half years if the experience of U.S. and European counterparts is anything to by, Uchida said.
"Any such special type of examination is better done by taking a wide perspective looking at various factors," he added.
The remarks follow those of incoming BOJ Governor Kazuo Ueda on Monday suggesting his preference to spend "plenty of time" if the central bank were to conduct a review of its policy framework.
With inflation exceeding its 2% target, markets are rife with speculation the BOJ will overhaul its yield curve control (YCC) policy once Ueda succeeds incumbent Governor Haruhiko Kuroda, whose term ends in April.
BOJ board member Naoki Tamura has openly called for the central bank to conduct a review of its 2% inflation target and its ultra-loose policy, in light of criticism that prolonged low rates were hurting financial institutions' margins and distorting the shape of the yield curve.
Earlier this month, the government named Uchida and Ryozo Himino, former head of Japan's banking sector watchdog, to become next BOJ deputy governors when the incumbents' terms end in March.
Under YCC, the BOJ guides short-term rates at -0.1% and the 10-year bond yield around 0% with an implicit ceiling of 0.5% to reflate growth and fire up inflation to its 2% target.
"It's true negative rates have hurt financial institutions' profits," Himino told the same confirmation hearing.
"While mindful of the impact on bank profits, it's important to support the economy with accommodative policy now to create an environment where companies can boost wages," he said.
While the BOJ needs to strategise ideas of an exit based on various economic scenarios, it can only debate specifics of the plan when sustained achievement of its 2% inflation target is foreseen, Himino said.
The BOJ has been forced to ramp up bond buying to defend its 0.5% cap set for the 10-year bond yield under YCC, leading some market players to bet it will tweak or abandon the policy soon.
BNP Paribas chief Japan economist Ryutaro Kono, for one, has predicted the BOJ could raise the yield cap at its next meeting in March, to allow bond yields to move more flexibly.
The BOJ on Tuesday offered 1 trillion yen ($7.34 billion) in five-year loans against collateral to banks, as part of efforts to defend its 0.5% yield cap.
The deputy governor nominations need the approval of the upper and lower houses of the Diet, which are effectively done deals as the ruling coalition holds solid majorities in both.