IMF says Japan may need monetary easing for ‘extended period’

May 30, 2014


Bank of Japan (BOJ) Governor Haruhiko Kuroda speaks during a press conference/AFP
Bank of Japan (BOJ) Governor Haruhiko Kuroda speaks during a press conference/AFP
TOKYO, May 30 – The Bank of Japan (BoJ) may need to keep up its stimulus drive for an “extended period”, the International Monetary Fund said Friday, as it warned again that Tokyo must follow through on promised economic reforms.

Fears that a recent sales tax rise would dent a recovery in the world’s number three economy have boosted speculation that the BoJ would be forced to expand its monetary easing campaign to counter any downturn.

The Washington-based IMF said that the bank’s target to reach 2.0 percent inflation by next year — aimed at conquering years of falling prices which held back growth — would most likely be reached by 2017 instead.

“The BoJ should act quickly if actual or expected inflation stagnates or growth disappoints,” the Fund said in its annual review of Japan’s economy.

“The current aggressive pace of monetary easing may need to be maintained for an extended period.”

The IMF has been upbeat on Prime Minister Shinzo Abe’s policy blitz — a mixture of big government spending and central bank monetary easing dubbed Abenomics, which is designed to drag the economy out of years of deflation and laggard growth.

But the plan’s so-called “third arrow” — reforms that include more flexible labour markets and free-trade deals — have been more talk than action so far.

Tokyo has agreed on a long-awaited trade agreement with Australia and started de-regulating the energy sector, but separate trade negotiations involving the United States, Japan and 10 other nations, known as the Trans-Pacific Partnership, have stalled.

Japan has long been accused of protecting its domestic industries with high trade and other non-tariff barriers, while many of its own exports, including vehicles and electronics, enjoy big sales overseas.

Last month, the IMF cut its growth forecast for Japan’s economy this year and its comments Friday were likely to heap renewed pressure on Abe before he releases a fresh update to his economic growth plan next month.

“The sustainability of the recovery over the medium term is at risk,” the IMF said, adding that “more forceful reforms are needed to tackle growth impediments”.

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