How will policymakers respond to the next downturn?

If the next downturn is a mild, cyclical one we would expect the Bank of Japan to cut its short-term policy rate but leave its 10-year yield target unchanged. Fiscal stimulus would probably have to do the heavy lifting. In the event of a severe downturn, we would expect the Bank to cut both its policy rate as well as its 10-year yield target and give the adoption of helicopter money serious thought.