TOKYO – The International Monetary Fund urged Japan on Monday to speed up structural reforms and to implement a more accommodative monetary policy to make the most of its current expansion.
IMF First Deputy Managing Director David Lipton made the comments during a press conference in Tokyo where he presented the IMF’s annual Article 4 evaluation of Japan’s economy.
“We feel the best policy is to make the most of positive (economic) momentum at present and to push ahead with needed reforms,” Lipton said, according to a statement on the IMF website.
The IMF said the country’s monetary policy should maintain a sustained accommodative stance and urged the Bank of Japan to carefully calibrate its yield curve policy, if downside risks materialized, and focus on capping long-term interest rates.
The financial organization also proposed measures such as phasing out references to its annual purchase targets of government bonds set at 80 trillion yen ($721 billion), among others, aimed at improving its credibility and investor confidence.
Japan’s economic expansion has been at its best since 2006, with GDP growing between January and March for the fifth consecutive quarter, thanks to huge external demand.
However the IMF noted that labor shortages continue to plague the Asian country and that inflation remains moderate.
There are other significant challenges like “demographic headwinds and an unprecedented level of public debt,” the Washington-based institution said.
The IMF expects Japan’s growth to continue in 2017, but stressed it could weaken in 2018 “if fiscal stimulus fades as currently planned,” adding that fiscal stimulus could support growth through “higher consumption and investment.”
Prime Minister Shinzo Abe’s government is seeking to promote a series of labor reforms, including curbing excessive overtime hours and discrimination between regular and non-regular workers, part of the prime minister’s “Abenomics” economic policies.
“Since its inception in 2012, Abenomics has proven successful in easing financial conditions, increasing corporate profits, and boosting employment and female labor force participation,” the IMF said.