Thursday 28 Mar 2024
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WASHINGTON (Apr 18): Japan must come up with and implement a clear, specific plan to cut its huge debt pile in order to make its monetary stimulus effective, the IMF's mission chief for the country said, warning Tokyo against loosening its grip on fiscal consolidation.

Prime Minister Shinzo Abe put off a sales tax hike last year and has been slow in pushing through painful spending cuts, arguing that Japan should focus more on boosting tax revenues by reflating the economy with stimulus.

The Bank of Japan's massive stimulus, deployed in 2013 and expanded last year, has kept borrowing costs ultra-low. But bank lending has failed to pick up as companies hold off on spending. Inflation ground to a halt on slumping oil costs, keeping alive expectations that the BOJ will ease again this year.

Kalpana Kochhar, the International Monetary Fund's mission chief for Japan, said the BOJ has done a lot already and with some promising signs of wage growth, Japan will see inflation pick up toward the end of this year.

She added that the effectiveness of the BOJ's stimulus depended "very much" on the government's creation of a clear, course of action to fix the country's worsening finances.

"Japan really has no choice but to start doing some form of fiscal consolidation," Kochhar told Reuters on Friday.

"It's very important to be able to convince the Japanese public that this fiscal situation will be brought under control at some point" so that they become confident enough to spend, she said.

Kochhar also stressed that Japan must stick to its new schedule of raising the sales tax to 10 percent in April 2017.

Abe delayed a second sales tax hike, initially scheduled for October 2014, by 18 months after the first increase to 8 percent from 5 percent pushed Japan into a recession.

Abe promised not to delay the tax hike again and to lay out a new, medium-term fiscal reform plan around mid-year to meet its commitment to the global community of bringing its primary budget to a surplus in fiscal 2020.

But analysts doubt the plan will have much details on how Japan will cut its debt which, at double the size of its economy, is the biggest among major industrialised nations.

Kochhar said Japan must come up with strategies on fiscal consolidation that includes a numerical target on the yearly size of debt adjustment and "fairly specific" measures well thought through.

But she also called for patience on how quickly Abe succeeds in pulling Japan out of stagnation with his "Abenomics" mix of fiscal spending, monetary stimulus and structural reforms.

"This is country that is facing a monumental, really unprecedented task" of beating deflation despite an ageing population and high debt burden, Kochhar said.

"You wouldn't find (solutions) in any text books ... We're all doing a bit of groping in the dark."

 

 

 

 

 

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