In a proposal after an annual policy consultation with Japan, the IMF said the central bank’s ultra-loose monetary policy remains appropriate as inflation is likely to fall back below its 2% target by the end of 2024 unless wages rise significantly., the IMF said, the BOJ should give long-term yields freer rein, such as by raising its 10-year bond yield target or widening the range it tolerates.
With Japan’s core consumer inflation at a 41-year high 4%, double the BOJ’s target, markets have been betting the central bank will phase out its aggressive stimulus after dovish Governor Haruhiko Kuroda retires in April. “Given the two-sided risks to inflation, more flexibility in long-term yields would help to avoid abrupt changes later. This would help better manage inflation risks and also help address the side-effects of prolonged easing,” the IMF said in a statement issued after the policy consultation.The IMF said the BOJ could also consider options such as targeting a shorter-term yield or the pace of its bond buying.
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