‘MORE EASING NEEDED IF RISKS ARISE’
IMF warns of Japan’s weak consumption that remains vulnerable to external shocks
TOKYO
THE International Monetary Fund (IMF) urged Japan to avoid withdrawing fiscal policy stimulus and said monetary policy should be loosened further if risks to the economy materialise, warning of weak consumption that remains vulnerable to external shocks.
While the Bank of Japan (BoJ) should maintain its ultra-loose policy, it should do so by focusing on capping long-term interest rates under its yield curve control policy, said IMF.
To clarify that stance and enhance communication of its policy, the central bank should “phase out” a loose pledge to keep increasing its government bond holdings at an annual pace of 80 trillion yen (RM3.08 trillion), it said.
“The BoJ should carefully calibrate its yield curve policy, if downside risks materialise, to provide additional monetary easing,” said IMF in its annual Article 4 evaluation of Japan’s economy.
IMF deputy managing director David Lipton said BoJ’s new monetary policy framework was already showing some success by bringing down market volatility and stabilising the bond yield curve.
“We’re comfortable with the stance of (BoJ) monetary policy. Recent changes to the monetary policy... (are) the right, useful approach.”
Lipton praised Prime Minister Shinzo Abe’s economic agenda, known as “Abenomics”, for raising economic growth.
In particular, Lipton singled out Abe’s policies designed to narrow the wage gap between regular and contract employees performing the same task.
The Article 4 report also welcomed the Japanese government’s plans to curb excessive overtime hours, improve access to childcare and get even more women to enter the workforce.
However, the IMF rapped Japan for being too slow in introducing legislation to enact these policies and for its timid approach to lowering the income tax burden on married women with part-time jobs.
The IMF also called on Japan to speed up its structural reform agenda. It called on Japan to keep its near-term fiscal stance neutral and avoid withdrawing stimulus next year.
Government data yesterday showed Japan unexpectedly slumped back into a trade deficit for the first time in four months, as soaring energy import bills offset growth in the country’s shipments abroad.
Japan logged a surprise deficit of 203 billion yen last month, the first red ink in four months, despite market expectations for a surplus. Agencies