The new BOJ chief’s message to the world: We’re keeping the course.

Last week, Japan’s new central bank governor, Kazuo Ueda, told officials at global financial meetings here that the country will remain a dovish outlier by keeping interest rates ultra-low for now.

Ueda has hinted at the end of Haruhiko Kuroda’s enormous stimulus since taking over a week ago.

Ueda has every motive to reassure the world that changing the ultra-loose policy will take time.

“Many countries have high or slow inflation. However, on Wednesday, Ueda told reporters, “The important thing is that the situation is quite different in Japan, which I explained at the meeting.”

Ueda told Thursday’s larger Group of 20 ministers that dropping import costs will lower Japan’s inflation, now at 3%, below the BOJ’s 2% target later this year.

The BOJ’s dovish words may indicate that it wants to avoid a repetition of January when markets expected a faster BOJ yield curve control (YCC) policy change and raised long-term interest rates.

The BOJ caps the 10-year Japan government bond yield at 0.5% and short-term rates at -0.1% under YCC. However, markets expect Ueda to adjust YCC this year as inflation exceeds the BOJ’s objective and the cost of continued easing rises.

The 10-year yield is 0.47%, although traders drove it above 0.5% many times this year, forcing the BOJ to defend it.

On Monday, the dollar rose 0.16% against the yen due to the BOJ’s dovish speech and market expectations of a May Fed rate hike.

On April 27-28, Ueda will preside over his first BOJ policy meeting. The board will release new quarterly growth and inflation estimates indicating how soon the central bank expects inflation to reach its 2% target.
The International Monetary Fund’s Tuesday warning of a global recession adds to Ueda’s caution.

Analysts say Ueda’s words allow room for YCC, which has been criticized for distorting the JGB yield curve and hurting financial institutions’ margins.

Ueda said on Wednesday that the BOJ should avoid a premature exit, but he won’t ignore the risk of falling behind in managing high inflation.

On April 10, he stated that the BOJ must make “pre-emptive” judgments on policy normalization timing to avoid disruption.

“We’ll discuss all options at each of our policy meetings,” Ueda said on Monday when questioned about changing the BOJ’s direction to keep interest rates ultra-low.

“Ueda and his deputies are taking care not to give any hint on the timing of a policy tweak,” said Ichiyoshi Securities analyst Nobuyasu Atago, a former BOJ official.

“But they also haven’t completely ruled out the chance of a near-term tweak to YCC,” he said.

The BOJ’s belief that cost-driven inflation is transient may be challenged by a worldwide discussion about the cost of delaying monetary tightening.

IMF First Deputy Managing Director Gita Gopinath said central banks might no longer be able to focus on demand and assume elastic supply.

“We’re in an economy where we’re going to be hit more by supply shocks, and monetary policy will face more serious trade-offs,” she said Friday.

The IMF advised Ueda to loosen the BOJ’s authority and allow long-term rates to grow more freely to reduce banking sector stress.

Given rising wage growth, IMF Japan mission chief Ranil Salgado thinks the BOJ could change its long-term rate target this year.

He said the BOJ could keep monetary policy accommodative even if short-term rates stay zero or slightly negative if it changes the yield objective.

“We are advising (the BOJ) to pretty much already be thinking about it,” Salgado said of YCC tweaks.