0748 GMT January 25, 2020
The fund also made several recommendations for the Bank of Japan, including the targeting of shorter-term bonds, while reiterating its call for more ambitious structural reforms to boost growth, Bloomberg reported.
“Fiscal policy should be supportive to protect near-term growth and promote inflation momentum,” IMF Managing Director Kristalina Georgieva, said according to the text of prepared remarks for a press conference to conclude the IMF’s Article IV consultation on the Japanese economy. “Beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.”
The IMF reduced its 2019 growth forecast for the world’s third-largest economy to 0.8 percent down from 0.9 percent. The fund said Japan’s expansion would further decelerate to 0.5 percent next year, matching the country’s potential growth rate.
Japan’s economy has been resilient despite weakness in eternal demand, but that “will be tested — most immediately by a synchronized global slowdown, and over the medium-term by uncertainties in the world economy, and by its own demographic trends,” Georgieva said.
While seven years of Abenomics produced visible progress such as lowering deflation risk and cutting fiscal deficit, inflation remains below the Bank of Japan’s two percent target and public debt is not yet on a sustainable path, according to Georgieva.
More needs to be done as the nation’s aging and declining population will weigh on growth and bring further challenges, the fund said. “Japan is ahead of other advanced economies in terms of demographic trends. Many look to Japan for lessons on how to handle their own demographic challenges,” she said.