Skip to content

IMF Suggests BOJ May Adjust Yield Target in 2023

The IMF hints at a potential adjustment to the Bank of Japan's bond yield target in 2023 due to anticipated lasting wage increases in the country.

IMF logo
IMF logo

The Bank of Japan (BOJ) may have the opportunity to adjust its bond yield target this year, as the country anticipates a lasting increase in wages, according to a senior International Monetary Fund (IMF) official. Ranil Salgado, the IMF's Japan mission chief, noted that the results of this year's "shunto" annual wage negotiations between major companies and unions have been better than expected, indicating a potential shift in the country's wage dynamics.

Salgado emphasized that the key to lasting wage increases lies in whether smaller firms will follow suit in raising wages and whether companies will continue to increase pay in the coming years. "Our view is, unless there is a global shock ... even next year's shunto negotiations should be pretty good," Salgado said in a recent interview.

BOJ Must Maintain Ultra-Loose Monetary Policy

Despite the potential for wage growth, Salgado stated that the BOJ must continue its ultra-loose monetary policy, as a sustainable achievement of 2% inflation has yet to be in sight. Once the BOJ is confident that Japan will experience lasting inflation and wage growth, it can adjust its long-term interest rate target.

Bank of Japan
Bank of Japan

BOJ's Yield Curve Control Policy and Possible Tweaks

Under the BOJ's yield curve control (YCC) policy, short-term interest rates are guided at the -0.1% level, while the 10-year bond yield is maintained around zero with an implicit cap of 0.5%. Salgado said that as long as short-term rates remain at zero or slightly negative, the BOJ can continue its accommodative monetary policy even if the yield target is adjusted.

Market Speculation on BOJ's Potential Yield Target Adjustment

Inflation exceeding the BOJ's target and the increasing cost of prolonged easing has led to speculation that the BOJ will adjust its YCC policy this year under new governor Kazuo Ueda. Ueda has stated that the BOJ must maintain its ultra-loose policy, including YCC, for now, as inflation will likely fall below the 2% target as import prices begin to decline.