IMF says if volatility hits market liquidity, the BoJ should be ready for targeted interventions, such as emergency bond buying, and that Japan should avoid cutting consumption tax as it would weaken fiscal space and raise fiscal risks

• It welcomes Japan's commitment to a flexible FX regime to support price stability and recommends the BOJ raise rates gradually to reach neutral by 2027.

The IMF's recommendation for the BoJ to prepare for targeted interventions highlights concerns about market liquidity, suggesting a potential shift in monetary policy responsiveness. This could trigger market speculation about future rate hikes and bond buying, potentially influencing the JPY and fixed income markets. Furthermore, caution against cutting the consumption tax indicates a focus on maintaining fiscal stability while navigating current economic challenges.