By Takahiko Wada and Leika Kihara
TOKYO (Reuters) - The Bank of Japan should change a policy statement so it has more flexibility to adjust interest rates instead of narrowly focusing on maintaining massive stimulus, Mana Nakazora, chief credit strategist at BNP Paribas (OTC:BNPQY) Japan, told Reuters.
Nakazora, also a member of a trade ministry panel that is studying how best to channel funds into green energy, is considered by some market players as a candidate to fill one of the two deputy BOJ governor posts opening up in March next year.
She said in an interview on Monday that the government and BOJ should revise a joint statement, signed in 2013, in which the central bank commits to achieving its 2% inflation target "at the earliest date possible" through ultra-loose monetary policy.
"The BOJ should change the language to give itself more allowance" in adjusting interest rates according to overseas and domestic economic developments, she said.
"It needs to communicate that interest rates could move up or down depending on economic developments," Nakazora said. "It's important to send a message that the BOJ's massive monetary easing will come to an end."
Under its yield curve control (YCC) policy, the BOJ guides short-term interest rates at -0.1% and caps the 10-year bond yield around 0%. It also buys huge sums of government bonds and risky assets to meet the inflation target.
BOJ Governor Haruhiko Kuroda has dismissed the chance of a near-term rate hike, and repeatedly pledged to maintain massive stimulus until inflation sustainably hits 2%.
With core consumer prices climbing 3.6% in October from a year earlier - their fastest pace annual pace in 40 years, markets are rife with speculation that the BOJ could tweak YCC and allow rates to rise more when Kuroda's term ends in April next year.
The BOJ's aggressive bond buying to defend the cap has kept the 10-year yield around 0%. But critics say that is distorting the shape of the curve as yields for other maturities have risen reflecting market expectations of a future policy shift.
Markets are beginning to price in the chance of a tweak to YCC with spreads also widening for corporate and municipal bonds, Nakazora said.
But any tweak to YCC will still leave Japanese interest rates well below those of U.S. and European nations given Japan's fragile economy, she said.