IMF urges BOJ to end bond yield controls. The Central Bank of Japan (BOJ) should consider ending its current yield curve control and massive asset purchases, then gradually raising short-term interest rates, the IMF said on Friday, as markets raised bets on a short-term change in the central bank’s ultra-fast policy.
As Japan’s economy continues to recover, domestic demand is replacing rising costs as the main driver of inflation as the output gap narrows and labor shortages intensify, the International Monetary Fund said.
IMF urges BOJ to end bond yield controls. Measures of price movements show that current inflation, which is above the BOJ’s target of 2%, is occurring across all products and services for the first time in three decades, the IMF said.
A narrowing output gap and rising wages will keep core inflation, excluding fresh food and energy costs, above the BOJ’s target of 2% through the second half of 2025, he said.
With inflation having topped 2% for more than a year, the BOJ has laid the groundwork for ending a complex stimulus program consisting of a massive asset purchase program called quantitative and qualitative easing (QQE), negative short-term interest rates and yields. curve control (YCC) – a policy that limits long-term interest rates around zero.
The BOJ may also continue to reinvest maturing government bonds into its balance sheet to avoid market disruptions, he said. The IMF criticized the government’s energy subsidies and plans to offer income tax cuts as “unjustified”, given Japan’s economic recovery and high debt-to-GDP ratio.