IMF says Japan needs to stick with fiscal, monetary stimulus

IMF warns Japan of withdrawing fiscal policy 

IMF warns Japan of withdrawing fiscal policy 

Japan should commit to new gradual increases to its consumption tax rate, beyond 10 percent, to help rein in its substantial deficit, a new report from the International Monetary Fund says.

The IMF expects Japan's growth to continue in 2017, but stressed it could weaken in 2018 "if fiscal stimulus fades as now planned", adding that fiscal stimulus could support growth through "higher consumption and investment".

As market credibility matters in making monetary policy a success, the IMF proposed steps for the BOJ to strengthen its communication framework, including "phasing out references" to its annual purchase targets of government bonds.

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 materialised, and focus on capping long-term interest rates.

The IMF pointed out that Japan's labor shortages have yet to feed through to wages and inflation remains subdued, citing as policy challenges "demographic headwinds and an unprecedented level of public debt".

"A comprehensive policy package-built around macro-critical structural reforms and income policies-is needed to make the most of monetary accommodation and available fiscal space", the IMF said.

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