tokyo dec 6 reuters  the bank of japan boj may abandon its 10year bond yield cap as early as next year on growing prospects that inflation and wages will overshoot expectations said takeo hoshi an academic with close ties to incumbent central bank policymakers the boj must maintain ultraloose policy for the time being to convince the public that it is serious about reflating the economy long enough to generate sustained inflation said hoshi an economics professor at the university of tokyo but the central bank must also guard against the risk of inflation well exceeding its expectations as intensifying labour shortages lift wages not just for parttime but permanent workers he told reuters in an interview on monday with inflation expectations already sufficiently high core consumer inflation could exceed the bojs 2 target next fiscal year and open scope for the central bank to abandon its 0 target for the 10year bond yield hoshi said prices didnt rise much in japan in the past but thats changing hoshi said japan might enter an era of high inflation the boj must start worrying about the possibility of inflation accelerating more than expected a member of various government committees and an expert on macroeconomic policy hoshi spoke as a panelist at the bojs workshop on nov 25 that discussed japans wage dynamics under yield curve control ycc the boj guides shortterm interest rates at 01 and pledges to guide the 10year bond yield around 0 it also gobbles up government bonds and risky assets as part of efforts to sustainably achieve 2 inflation the central bank has been forced to offer buying unlimited amounts of 10year government bonds to defend the yield target a move criticised by investors for draining bond market liquidity and distorting the shape of the yield curve if the boj were to normalise monetary policy it will do so in several stages starting with the removal of the 10year yield target that is distorting the shape of the yield curve he said the central bank will then reduce the size of its balance sheet by slowing or ending asset purchases before moving onto raising shortterm interest rates hoshi said in a less favourable scenario the boj could be forced into abandoning ycc as early as next year if upward pressure on global interest rates persists he added the boj has been an outlier amid a global wave of central banks tightening monetary policy even as rising raw material prices push core consumer inflation above its 2 target boj governor haruhiko kuroda has ruled out withdrawing stimulus unless the recent costpush inflation is accompanied by higher growth in wages which remains stubbornly low under current projections made in october the boj expects core consumer inflation to hit 29 in the current fiscal year ending in march 2023 before slowing to 16 next fiscal year reporting by leika kihara and takahiko wada editing by sam holmes