## IMF Survey : Japan: Concrete Fiscal, Growth Measures Can Help Exit Deflation

_IMF News, August 5, 2013_

## Source details

**Canonical URL:** [IMF Survey : Japan: Concrete Fiscal, Growth Measures Can Help Exit Deflation](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar080513a)

## Other formats

- [Markdown version](/en/news/articles/2015/09/28/04/53/socar080513a/index.md)
- [Structured JSON version](/en/news/articles/2015/09/28/04/53/socar080513a/index.json)
- [Bundle manifest](/en/news/articles/2015/09/28/04/53/socar080513a/bundle-manifest.json)

## Bibliographic details
- Published: August 5, 2013

---

### Overview
- The “three arrows” of Abenomics (aggressive monetary easing, more flexible fiscal policies, and structural reforms) provide a unique opportunity to exit deflation and revive growth.
- The Bank of Japan’s Quantitative and Qualitative Monetary Easing is taking the lead in ending deflation.
- IMF economists stress the need to launch the second and third arrows—credible medium-term fiscal and growth plans—to secure a sustained recovery and to bring down public debt.

### Short-term outcomes and projections
- The unprecedented monetary easing contributed to a pickup in demand and growth accelerated sharply in early 2013.
- Wealth effects from rising equity values stimulated consumption; strong regional demand and a weaker yen resulted in an export rebound.
- Private investment has yet to pick up, but industrial production and retail sales are improving.
- Inflation expectations have increased and headline inflation is slowly rising.
- IMF projection: growth to reach 2 percent in 2013.
- IMF projection: inflation to gradually increase to 0.7 percent by the end of the year.

### Domestic and external risks
- External risks:
  - A slowdown in emerging markets, especially in China, or a protracted period of slower growth in Europe could reduce demand for Japanese exports and lower growth below IMF projections.
- Domestic risks:
  - The most significant domestic risk is the lack of credible fiscal consolidation and structural reform plans.
  - “Without concrete measures, the new macroeconomic framework lacks credibility and may fail to raise growth and inflation expectations.”
  - Risk that monetary policy becomes overburdened and the rest of the world could be negatively affected through a weaker yen.
  - Worst-case scenario: given Japan’s high public debt, the lack of a convincing debt reduction strategy could result in a shift in market perceptions and a self-fulfilling sell-off of government bonds.

### Fiscal recommendations and required consolidation
- To place the public debt-to-GDP ratio on a downward path, IMF economists estimate that a fiscal consolidation of 11 percent over the next decade is required.
- Implementing the planned increase of the consumption tax rate from 5 to 10 percent by 2015 is a necessary first step.
- Substantial additional consolidation measures to take effect after 2015 will also be necessary.
- Suggested medium-term, growth-friendly measures include:
  - A further increase of the consumption tax rate to at least 15 percent.
  - Broadening the personal income tax base to raise revenue and improve incentives to work.
  - Containing pension and health spending.

### Structural reform recommendations
- The government’s new growth strategy includes several ambitious goals, but specific measures remain to be formulated.
- Trade negotiations:
  - Negotiations over Japan’s participation in the Trans-Pacific Partnership are a welcome step.
- Labor market and social policies:
  - Structural reforms should include measures to raise female labor participation.
  - Welcomed government plans to eliminate waiting lists on kindergartens and day-care centers to support women’s employment.
  - “Raising the employment of women would give an important signal about the government’s commitment to reforms.”
- Other recommended reforms:
  - Reduce excessive labor market duality.
  - Deregulation in the agriculture and service sectors.
  - Financial sector reforms to achieve a more efficient allocation of credit.
  - Relaxation of immigration requirements to address labor shortages.

### Implications and closing assessment
- Adoption of concrete fiscal and structural reform measures would strongly mitigate risks and greatly improve the chances for Japan to end deflation and revive growth.
- Reviving growth and ending deflation would be beneficial not only for Japan but also for the rest of the world.
- “All three arrows should be launched for the policies to succeed and benefit the global economy.”

*Source: IMF Survey, August 5, 2013.*

---

## Content in this bundle

- [Car080513acpdf (PDF)](/-/media/websites/imf/imported/external/chinese/pubs/ft/survey/so/2013/car080513acpdf.pdf){rel="external" type="application/pdf"}
- [Car080513ajpdf (PDF)](/-/media/websites/imf/imported/external/japanese/pubs/ft/survey/so/2013/car080513ajpdf.pdf){rel="external" type="application/pdf"}
- [Cr13253pdf (PDF)](/-/media/websites/imf/imported/external/pubs/ft/scr/2013/_cr13253pdf.pdf){rel="external" type="application/pdf"}

---

## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [Read the press release](http://www.imf.org/external/np/sec/pr/2013/pr13296.htm)
- [Video: Japanese ask the IMF](http://www.imf.org/external/mmedia/view.aspx?vid=2581581067001)
- [Blog: Will the arrows fly?](http://blog-imfdirect.imf.org/2013/08/05/japans-three-arrows%e2%80%95will-they-fly/)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar080513a_