The central bank of Japan should consider allowing rates of fees long-term investors to move more flexibly even while maintaining ultra-loose monetary policy, a senior U.S. official said. International Monetary Fund this Friday.
O Bank of Japan may mitigate pressure on financial institutions by allowing the longer end of the curve to move further under its bond-yield control policy, said Ranil Salgado, the IMF’s head of mission in Japan.
By suppressing the shorter end of the curve, such as three- to five-year borrowing costs, the central bank can continue to provide sufficient support to the economy even as it allows longer-term rates to rise further, he added.
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“Monetary policy should remain expansionary for now,” Salgado said at an online press conference on Japan’s monetary policy. “Our advice was (to the Bank of Japan) to consider greater flexibility in long-term yields,” he added.
Under yield curve control, the Japanese central bank is targeting short-term rates at -0.1% and ten-year bond yields at around 0%.
Its massive bond purchases to defend an implied yield cap of 0.5% set for the 10-year bond has been criticized for distorting bond prices and making the market dysfunctional by drying up liquidity.
Source: Moneytimes
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