Shinzo Abe | IMF says Japan needs bold reforms to spark economic revival

IMF says Japan needs bold reforms to spark economic revival

June 20, 2016 8:35 AM (UTC+8)

 

By Tetsushi Kajimoto and Stanley White

TOKYO (Reuters) – The International Monetary Fund on Monday said the Japanese government’s quest to revitalise its economy faces a long slog in the absence of ‘bold’ structural reforms, and urged Tokyo to move income policies and labour market reform to the forefront.

The global lender called for a more flexible monetary policy framework with the Bank of Japan abandoning a specific calendar date for achieving its 2 percent inflation target.

“Under current policies, the high nominal growth goal, the inflation target, and the primary budget surplus objective all remain out of reach within the timeframe set by the authorities,” the IMF said in a statement after “Article 4” annual consultations on economic policy with Japan.

Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo October 10, 2012. REUTERS/Kim Kyung-Hoon
Visitors are silhouetted against the logo of the International Monetary Fund at the main venue for the IMF and World Bank annual meeting in Tokyo, October 2012. REUTERS/Kim Kyung-Hoon

The IMF’s sober assessment comes as the effectiveness of Prime Minister Shinzo Abe’s reflationary policies dubbed Abenomics face renewed doubts as inflation has ground to a virtual halt and growth has remained anaemic.

While unprecedented monetary expansion and fiscal stimulus met with some initial success, Abe’s ‘third arrow’ of structural reforms have been slow to make headway.

“Abenomics has made progress in revitalising Japanese economy,” David Lipton, the first deputy managing director of the IMF, told a press conference in Tokyo.

“This year’s consultation, however, highlighted continuing challenges that Abenomics faces in the effort to achieve its goals, the objectives of higher growth, higher inflation and fiscal sustainability.”

It added that Japan would need to raise the sales tax – currently at 8 percent – to at least 15 percent to strike the right balance between growth and fiscal sustainability.

The appreciation of the real effective exchange rate since the start of this year has moved it towards a level broadly in line with medium-term fundamentals, it added.

“Without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish, and any further monetary easing could lead to overreliance on depreciation of the yen,” the IMF said.

(Reporting by Tetsushi Kajimoto and Stanley White; Editing by Chris Gallagher & Shri Navaratnam)

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