By Kantaro Komiya
TOKYO (Reuters) - The Bank of Japan's (BOJ) 2% inflation target can be modified into a "range" to sustain monetary policy flexibility amid possibly higher inflation compared to pre-COVID times, former board member Sayuri Shirai said on Wednesday.
Shirai, widely seen as a candidate to become deputy governor at the central bank this spring, also said there should be a review of Japan's monetary policy over the past 10 years.
"The 2% inflation has been achieved, while it could have been due to supply-side (factors), and the structure of inflation might have changed long-term on coronavirus, geopolitical risks and aging demographics," Shirai said.
"Given the chance inflation may stay elevated compared to pre-pandemic, we must be careful about abolishing the 2% inflation target and I think making it a range is one possibility."
The BOJ, long preoccupied with reviving price growth to avert a risk of deflation, has been an outlier among central banks this year.
It has kept interest rates negative while other central banks have hiked hard to tame inflation, but it unexpectedly adjusted its policy band for bond yields last month, and some speculators are raising their bets on bigger changes.
The new BOJ leadership after the incumbent governor Haruhiko Kuroda's term ends in April should conduct a policy review, Shirai said, as she had the impression the central bank's communication with markets had become slightly "complex".
"But I don't see a drastic change coming to the (BOJ's) policy framework, since Japanese economic fundamentals appear to support low interest rates," she said.
Shirai, currently an economics professor at Keio University, also said the BOJ's move to tweak its bond yield curve control last month was a "reasonable decision" aimed at making its policy sustainable, speaking at a news conference at the Japan National Press Club.