Japan Should Add Stimulus If Growth Fails to Pick Up, IMF Says
The Japanese government and central bank should be ready to provide additional stimulus measures should global demand fail to improve enough to underpin a recovery, the International Monetary Fund said.
“There are downside risks, particularly if export demand continues to remain weak and unemployment starts to weaken consumption further,” Jim Gordon, the IMF mission chief to Japan, said yesterday. “This emphasizes the importance of monetary policy, fiscal policy and financial sector policy to remain supportive with additional measures” if the outlook deteriorates, he said.
Prime Minister Taro Aso has pledged 25 trillion yen ($260 billion) to revive an economy in its deepest recession since 1945. The Bank of Japan, which has lowered its benchmark interest rate to 0.1 percent, bought government and corporate debt and provided banks with unlimited loans, said hours before the IMF report that yesterday’s expansion of its emergency- credit program to December may be the last.
“We decided to extend the measures by three months this time, rather than six months, because financial conditions are improving and we expect this improvement to continue,” the bank’s governor Masaaki Shirakawa said in Tokyo after the decision. “If this situation develops further, we will end” the programs, he said.
Commenting on the policies of Japan’s central bank, the IMF in a report said that most directors “supported additional credit easing measures should downside risks materialize or financial stresses resurface, while minimizing risks to the Bank of Japan’s balance sheet.”
Growth in 2010
The Washington-based IMF, which in the past year has shored up economies from Iceland to Pakistan, said it expects the world’s second-largest economy to grow 1 health insurance companies.75 percent next year after a 6 percent contraction in 2009. The forecasts were made in the IMF’s annual “Article IV” report released yesterday on Japan’s economy and were the same as the IMF announced last week.
The IMF executive directors expect “a sustained recovery to take hold next year, in line with a pick up in global growth, with inflation in mildly negative territory during the slowdown,” according to the lender’s statement. Directors also said “the outlook is exceptionally uncertain.”
The IMF said risks to its forecast are still “tilted to the downside” with a “rapidly deteriorating labor market, tight domestic financial conditions, and external uncertainties.”
While the fund praised Japanese policy makers’ “well- calibrated response” to the crisis, it also warned the support measures might contribute to exacerbating the country’s net debt.
The fund called on policy makers to turn their attention to exiting “exceptional policy interventions” once the recovery is under way.
The IMF staff report, noting that the yen had appreciated by about 20 percent in real effective terms since August 2008, said the currency appears “in line with its longer-term equilibrium.”
Filed under: economics by Guru