By Daniel Leussink

TOKYO (Reuters). The Bank of Japan’s yield curve control policy should be revised or abandoned if benchmark Japanese government bonds (JGBs) continue to rise beyond the limits of its range. This is what a third of economists polled by Reuters suggested.

Recent weeks have seen the BOJ defend its ultra-low rate policy. Under it, it promises to keep 10-year yields below 0%. The opposite is happening with U.S. Federal Reserve who aggressively pushes for substantial rate hikes.

The BOJ establishes an implicit limit around its 0% target, and long-term rates can move up or down by 0.25% under YCC.

With moves remaining stubbornly at the higher end of this range and the yen plummeting to two-decade highs, the central banks has bought more debt from last month in order to maintain the 10-year target yield.

Inflation has risen in America and other countries due to uncertainty in global economic conditions. This is mainly because of the Russian war in Ukraine and supply chain disruptions.

Yusuke Shinoda, senior economist at Japan Research Institute, stated, “The United States has been aggressive in tightening money,”

The Bank of Japan must take action because there is no doubt that upward pressure will increase on interest rates due to the gap in monetary policies.

Five economists suggested that the BOJ raise the YCC range if there is a continued rise in the yield on the JGB 10-year note.

Shimoda said that there is an option to increase the permissible range from the current 0.25 percent to 0.50%.

Another four respondents said that the BOJ should set a target for yields having a shorter maturity period than the 10-year bonds. A third economist stated that the BOJ should abandon the 0% target and YCC altogether.

On Friday, the yield on the 10-year JGB was 0.245%.

The central bank will likely keep the short-term rates at -0.1% during its rate review next Thursday. It is also expected to maintain its long-term target rate.

In March 2021 the BOJ increased the yield band for YCC from 0.20% to its target of zero percent.

Mari Iwashita (chief market economist, Daiwa Securities) stated that “it’s necessary to explain whether or not the fluctuation range remains appropriate.”

The survey revealed that 18 out of 28 economists thought the BOJ should offer unlimited JGBs to all if it continues rising in the bank’s higher range of 10-year yields.

The median prediction of over 40 analysts from the April 11-21 poll showed that Japan’s economy would expand by an average 5.1% per year in the current quarter. That’s slightly more than the 4.9% forecast for March.

According to projections, the third-largest country in the world will see a growth of 2.5% during this current month and 1.6% in 2023 following a expected expansion of 2.3% in 2021.

After a modest 0.1% increase in the previous fiscal, core consumer prices will see a rise of 1.7% in this year’s fiscal and 0.8% for fiscal 2023.

(You can also see other stories in the Reuters economic poll.