The IMF’s chief economist on Wednesday called on the Bank of Japan to implement more aggressive monetary easing to end deflation and support the nation’s economy.
Speaking at a news conference, Kenneth Rogoff also said Japan may need an extra budget in fiscal 2002 to promote reforms but that it would have to be accompanied by further monetary easing to be effective.
The central bank has already guided long-term interest rates to 0.02 percent.
“I think that an aggressive move . . . including quantitative easing and a communication strategy (which clarifies) that the object is to end deflation . . . is warranted at this point,” said Rogoff, the International Monetary Fund’s economic counselor and director of research.
He said the BOJ should make clear to the markets that its policy is to end deflation and “to achieve a positive rate of inflation within a reasonably short time frame.”
Rogoff said the supplementary budget may become necessary “in the context of a larger restructuring” of the corporate and banking sectors. But Rogoff also warned that fiscal steps alone will not help.
“I think fiscal policy acting in isolation without the other changes, without aggressive monetary policy to ease deflation, would have only a limited chance of success,” he said.
The government is under pressure from heavyweight politicians in the ruling bloc to compile a supplementary budget to reduce economic suffering as plunging stock prices continue to damage the economy.