Japan: Staff Report for the 2015 Article IV Consultation
IMF Staff Country Reports, July 23, 2015
Source details
- Canonical URL
- Japan: Staff Report for the 2015 Article IV Consultation
Other formats
Bibliographic details
- Published: July 23, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781513506180.002
Key issues and overall assessment
- Abenomics has "lifted Japan out of the doldrums" and needs to be reinforced to accomplish the desired "once in a lifetime" economic regime shift.
- Policy priorities: ending an entrenched deflationary mindset, raising growth, restoring fiscal and debt sustainability, and maintaining financial stability in the face of adverse demographics.
- Japan should be at the vanguard of structural reform to raise confidence and domestic demand.
Structural reforms and labor market
- More vigorous efforts to raise labor supply and deregulate domestic markets are essential to:
- lift growth,
- facilitate fiscal consolidation,
- unburden monetary policy.
- Reforms should be backed by further endeavors to raise wages and investment and designed to boost confidence and raise domestic demand.
Fiscal policy and consolidation
- A credible medium-term fiscal consolidation plan is needed to remove uncertainty about the direction of policies that may be holding back domestic demand.
- Overarching fiscal goal: put debt on a downward path through gradual but steady consolidation that does not derail growth and inflation momentum.
- Consolidation should be based on prudent economic assumptions and on concrete structural revenue and expenditure measures identified upfront.
Monetary policy and inflation
- Actual and expected inflation remain well below the Bank of Japan’s (BoJ’s) inflation target and monetary policy transmission remains weak.
- The BoJ needs to stand ready to undertake further easing and should provide stronger guidance to markets through enhanced communication.
- Absent deeper structural reforms, even with further easing, reaching two- percent inflation in a stable manner is likely to take longer than envisaged.
- Recommendation: the BoJ should put greater emphasis on achieving the inflation target in a stable manner rather than within a specific time frame.
- More explicit monetary guidance would enhance inflation dynamics.
Financial sector implications and risks
- The financial sector should be a greater catalyst for growth and guard against risks from unconventional policies.
- The soundness of the financial system allows more risk taking and consolidation, while remaining resilient to likely higher volatility of asset prices, exchange rates and interest rates, and lower liquidity in the JGB market as quantitative easing proceeds.
External position and spillover risks
- While the 2014 external position was assessed to be broadly aligned with fundamentals, subsequent developments and incomplete policies raise the risk of negative spillovers.
- With the depreciation of the yen relative to its mid-2014 level, further monetary easing without bolder structural reforms and a credible medium-term fiscal consolidation plan could lead to sluggish domestic demand and overreliance on yen depreciation to pursue domestic policy objectives.
International Monetary Fund. Asia and Pacific Dept "Japan: Staff Report for the 2015 Article IV Consultation", IMF Staff Country Reports 2015, 197 (2015).