MNI: IMF : BOJ Can Shorten 10-Yr Target To Shorter Tenor

The Bank of Japan can shorten the 10-year policy interest rate yield curve to a shorter maturity to make monetary support more sustainable, the International Monetary Fund’s 2022 Article IV Mission said on Friday.

“If the underlying inflation momentum remains weak, cutting the policy rate should be the first option,” the IMF also said. It pointed out that the BOJ’s commitment to maintaining prolonged monetary accommodation remains appropriate.

“One option could be to steepen the yield curve by shifting the yield target from the 10-year to a shorter maturity,” the IMF said. "This could help mitigate the impact of prolonged monetary accommodation on financial institutions’ profitability, while still keeping down the short- to medium-term yields that matter most for economic activity.”

“Careful implementation and communication would be needed to avoid a market perception of withdrawal of monetary accommodation,” it said.