Speculation mounted on Thursday that the Bank of Japan may set a reference rate on inflation to bring more transparency to its policy thinking after it ends its five-year-old ultra-easy policy.

Setting such a framework is seen vital to preventing market disruptions when the BOJ scraps its unprecedented policy of flooding the money market with huge amounts of funds to beat deflation — called quantitative easing — and revert to a more conventional interest rate policy.

BOJ Governor Toshihiko Fukui and other central bankers have said they would present new guidelines to boost transparency in their policy making, and calls for such a measure are growing among government officials as well as nervous markets.

Jiji Press news agency reported on Thursday that the BOJ was considering introducing a reference rate but that that would not be the sort of binding inflation target that some experts and politicians have been calling for.

The Mainichi Shimbun newspaper said in a similar report that the BOJ would present outlook figures on prices. Other reports said the rate could be a wide band like 0-2 percent.

BOJ sources declined to say whether such a measure was on the cards but told Reuters that even if it were to be introduced, 2 percent would be too high for Japan’s economy.

They said it was impossible to mimic inflation targets used overseas, such as a 2 percent inflation target adopted by the Bank of England, as such an inflation rate would not suit Japan’s economy, where inflation has rarely reached 2 percent over the last few decades.

“We would have to keep our monetary policy easy forever,” said one BOJ source.

Fukui has repeatedly said a prices level that Japanese people feel comfortable with would probably be lower than that in other countries.

Mainstream BOJ policymakers have been reluctant to introduce a hard target for inflation that might undermine flexibility in their policy, and the reference rate suggested in the reports would be aimed at balancing transparency and flexibility.

With the BOJ set to meet next Wednesday and Thursday, the market is now focusing on the January consumer price index (CPI) due out on Friday.

The core CPI rose above year-ago levels for the second straight month in December and a market consensus for a 0.4 percent rise in January — combined with some hawkish comments by central bankers over the past week — has fuelled expectations for an imminent BOJ move.

When the BOJ introduced the quantitative easing policy in March 2001, it pledged to keep it in place until the core CPI starts to rise steadily.

For the last few years, market expectations have been anchored by that promise, but many in the market and government are now calling on the BOJ to introduce steps to manage expectations to prevent unwanted spike-ups in bond yields. Fukui has said the BOJ would keep short-term interest rates at extremely low levels for some time even after a policy change.

A senior BOJ official was quoted as telling the ruling Liberal Democratic Party’s (LDP) monetary policy committee on Thursday that the economic impact of a policy shift would be negligible so long as interest rates do not change.

“Even if there is a policy shift, if rates are at zero there should not be an impact,” Kozo Yamamoto, the head of the LDP committee, quoted the official as saying.

But uncertainty about how long interest rates will be at zero has kept the market and politicians nervous.

Yield on the benchmark 10-year Japanese government bonds rose to a 18-month high of 1.64 percent on Thursday, compared with a record low of 0.43 percent set in 2003.

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