IMF Says BOJ Easy Policy 'Remains Appropriate', Execution Options

The Bank of Japan could increase long-term yields, widen the 10-year target band and/or raise the 10-year target, shorten the yield curve target as viable policy options, the International Monetary Fund said on Thursday in its latest Article VI review, published Thursday.

• The Washington-based fund said that the BOJ could also shift “from a JGB yield target to a quantity target of JGB purchases," although the central bank would need to carefully assess the pros and cons of each strategy.”
• “Moving to a shorter-term yield target would help ensure that the short-term yields (which matters more for real activity) continue to stay low until the 2% target is durably achieved, but the BoJ may face similar costly side-effects that come with targeting a particular yield level,” the IMF said.
• The IMF said an accommodative monetary policy stance "remains appropriate" but needs to be supported by other policies to achieve the 2% inflation target sustainably, including policies to improve productivity and real wages.
• However, the IMF warned that given two-sided risks to inflation, "more flexibility in long-term yields would help to avoid abrupt changes later.”