By Leika Kihara
TOKYO (Reuters) -Bank of Japan (BOJ) Deputy Governor Shinichi Uchida said the central bank will maintain its yield curve control policy from the perspective of sustaining ultra-loose monetary conditions, the Nikkei newspaper reported on Friday.
"We want to make the decision from the perspective of how to sustain easy monetary conditions, while taking into account (the policy's) impact on financial intermediation and market function," Uchida was quoted as saying by Nikkei, when asked about the chance of modifying a cap the BOJ sets on long-term interest rates.
With inflation exceeding its 2% target for more than a year, markets are simmering with speculation the BOJ will tweak yield curve control (YCC) - a policy that guides short-term interest rates at -0.1% and caps the 10-year bond yield around 0%.
Uchida ruled out the chance of an early end to negative short-term rates, saying any such move would be tantamount to a 0.1% interest rate hike and was inappropriate in light of current economic conditions, according to Nikkei.
Introduced in 2016 after years of heavy asset-buying failed to fire up inflation to the BOJ's 2% target, YCC has drawn criticism from investors for distorting market pricing and eroding financial institutions' profits with prolonged ultra-low rates.
Uchida said the BOJ "strongly acknowledges" the side-effects of YCC such as the impact on market function, according to Nikkei.
But the central bank must support the economy amid recent signs of change in corporate wage and price-setting behaviour, Uchida was quoted as saying.
"The risk of missing the opportunity to achieve our 2% target with a premature policy shift is bigger than that of being too late in tightening policy and allowing inflation to continue running above 2%," Uchida told Nikkei.