Japan 2017 Article IV Press Conference Opening Remarks by David Lipton, IMF First Deputy Managing Director
IMF News, June 19, 2017
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- Published: June 19, 2017
Main findings and outlook
- Under current policies, we expect growth of 1.3 percent this year and 0.6 percent in 2018.
- Inflation is likely to move upward slowly, but remain below the 2 percent target in the next few years.
- The financial sector remains stable, but banks and insurers face a challenging environment as low interest rates have reduced profitability and led to a search for higher yields—bringing new and less understood risks.
- The 2016 current account balance was just moderately stronger than warranted by medium-term fundamentals and desirable policies.
- The real exchange rate appreciated substantially between 2015 and 2016, moving it to a level consistent with medium-term fundamentals.
Policy diagnosis
- Current positive economic momentum presents an opportunity to push forward with reforms under Abenomics and the new Work Style Reform agenda to secure sustained and inclusive growth, raise inflation, and achieve fiscal sustainability.
- Given the macroeconomic and financial context, the best policy is to make the most of positive momentum and push ahead with needed reforms.
Recommended policy package
- A well-coordinated reform package should combine continued fiscal and monetary support with structural reform, income policies, and steps to contain financial sector risks.
- Labor market reforms to increase productivity and boost wages:
- Close gaps between regular and non-regular workers.
- Increase mobility across firms.
- Implement “equal pay for equal work” to boost overall wages.
- Measures to increase private investment and long-term growth:
- Product and services market reforms.
- Further corporate governance reform.
- Ensure credit is available to small and medium size firms.
- Measures to diversify and enhance labor supply:
- Further support for female and older workers.
- Increased use of foreign labor.
- Eliminate disincentives to full-time work embedded in the tax and social security systems.
- Increase availability of childcare and nursing facilities.
- Reduce excessive overtime.
- Coordinated near-term monetary and fiscal support combined with income policies:
- Monetary policy should maintain a sustained accommodative stance, and provide additional easing if downside risks materialize.
- The near-term fiscal stance should be at least broadly neutral in 2018, avoiding the scheduled withdrawal of fiscal stimulus.
- Steady medium-term fiscal consolidation is needed to contain public debt, and should move in line with evolution of the economy.
- The 2018 fiscal review is an important opportunity to set sound medium term fiscal targets and specific budget measures.
- Income policies—such as increasing administratively controlled wages and incentivizing private firms to raise wages—should complement and amplify monetary and fiscal support.
- Financial sector measures:
- Enhanced financial oversight and strengthened corporate governance among banks and insurers to help contain emerging risks.
- Strengthen crisis management and resolution frameworks.
- Continue dialogue with financial institutions on how to adjust to macroeconomic and demographic trends.
Implementation emphasis
- The policy package needs to be implemented in a decisive and well coordinated manner to make substantive progress toward the government’s objectives.
- Ultimately, a strong and coordinated set of domestic policies is the best way to secure external balance over the medium term.
David Lipton, IMF First Deputy Managing Director — June 19, 2017 — International Monetary Fund