IMF said in a statement that “accommodative monetary policy stance remains appropriate” for BoJ. But it warned of the “exceptionally high uncertainty around baseline inflation projections with risks tilted to the upside”.
Upside risks include “delayed effects of exchange rate depreciation, border reopening, second round effects of imported inflation, fiscal support, and higher-than-expected wage growth.” Downside risks are mainly from slowdown in the global economy.
“Given the two-sided risks to inflation, more flexibility in long-term yields would help to avoid abrupt changes later… providing clear guidance on the pre-conditions for a gradual policy rate change in the future would help anchor market expectations and strengthen the credibility of the BoJ’s commitment”.
“BoJ could consider the following options to allow further flexibility and increases in long-term yields: widening the 10-year target band and/or raising the 10-year target, shortening the yield curve target, or shifting from a JGB yield target to a quantity target of JGB purchases”.
