TOKYO, Feb. 18 — The International Monetary Fund (IMF) has warned that Japan should continue tightening monetary policy and avoid lowering the consumption tax.
The IMF said in a statement on Tuesday after concluding regular consultations with Japanese authorities that the Bank of Japan is “appropriately withdrawing monetary accommodation” and should continue raising interest rates gradually so the policy rate could reach a neutral level, neither stimulating nor dampening the economy, in 2027.
The IMF said the Japanese central bank’s “continued independence and credibility” will help keep inflation expectations well anchored, warning the government against meddling too much in monetary policy.
The latest warning came as Japanese Prime Minister Sanae Takaichi aims to suspend the 8 percent tax on food and beverages for two years following the general election earlier this month, framing the move as necessary support for households.
“Support for vulnerable households and firms most affected by rising costs of living or large external shocks should be budget neutral, temporary, and targeted to these groups,” the IMF said.
The IMF cautioned that reducing Japan’s consumption tax would “erode fiscal space and add to fiscal risks,” and that an “untargeted measure” to deal with the rising cost of living could further deteriorate the country’s fiscal health.
The IMF warned that Japan’s public debt, the highest among major economies, is projected to grow over the long term, although spending restraints and stronger tax collection have had positive effects on its post-pandemic fiscal consolidation efforts.
The Washington-headquartered organization analyzed multiple dimensions of the Japanese economy, not only its fiscal conditions, noting that risks to the economic outlook are “tilted to the downside.”
“Domestically, the main risk remains weak consumption if real wage growth fails to turn positive,” it said. (Namibia Daily News/Xinhua)
