IMF staff sees little hope for Japan to meet growth goals

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IMF staff sees little hope for Japan to meet growth goals

Japan is falling short of its economic targets, and needs to reload the “three arrows” of Abenomics to support higher wages and labor-market reforms, the International Monetary Fund (IMF) said in a report published Monday.

“Under current policies, the high nominal growth goal, the inflation target, and the primary budget surplus objective all remain out of reach within the time frame set by the authorities,” the fund’s staff wrote in a report at the conclusion of annual talks in Tokyo. “Monetary and fiscal policies in isolation cannot achieve the inflation target in the envisaged time frame.”

Abe came into power in 2012 championing a three-pronged strategy of bold monetary easing, flexible fiscal policy and a growth strategy to boost the competitiveness of the world’s third-largest economy. While the strategy has weakened the yen and boosted stocks, the target of increasing inflation to 2 percent has been elusive.

Japan also has to reduce the world’s biggest debt burden through spending cuts or tax increases. The fund urged modest fiscal expansion in the near-term, coordinated with monetary stimulus.

“Without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish, and any further monetary easing could lead to over-reliance on depreciation of the yen,” according to the report. Without a significant policy upgrade, the IMF warned there will be “very limited” space for more fiscal and monetary stimulus.

The IMF also said that the government needs to chart a credible fiscal consolidation course, which should include gradual increases of the sales tax toward at least 15 percent, instead of a planned rise to 10 percent planned in 2019. The levy currently stands at 8 percent. Bloomberg

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