WASHINGTON – Japan should implement structural reforms to expand its economy once postdisaster reconstruction demand starts to wane, according to IMF Deputy Managing Director Naoyuki Shinohara.
“Japan’s economic growth rate is high at the moment but will likely fall eventually because it is supported by reconstruction demand” in the disaster-hit northeast, Shinohara said in a recent interview.
He stressed that “it is important (for Tokyo) to carry out structural reforms,” including deregulation and liberalization of Japan’s underperforming service sector, “to increase its growth potential and productivity.”
In addition, Shinohara said more discussions are needed on enhancing the participation of women in Japan’s labor market, as achieving growth is becoming ever more difficult due to the shrinking workforce.
He said the government will need to introduce new incentives, including setting a target for the number of female public servants who receive promotions. Shinohara believes measures such as income tax deductions for spouses are not sufficient on their own to increase women in the workforce.
Referring to fiscal reconstruction, Shinohara said that in addition to economic growth, cutting the budget deficit and achieving a suitable rate of inflation are the key factors.
Now that a bill to the hike the consumption tax has been enacted, creating a new source of revenue for the government in the future, slashing spending to reduce the budget deficit is essential, he stressed.
“On top of this, Japan has to overcome deflationary pressures and the Bank of Japan should play a leading role,” he added.
Asked about the annual meetings of the International Monetary Fund and the World Bank in Tokyo next week, Shinohara said they provide “the perfect opportunity for Japan to display the progress made in rebuilding disaster zones to overseas participants.”
He also said the meetings will create an opportunity to discuss the global economy’s various problems, adding he hopes talks on Europe’s sovereign debt crisis will be prove fruitful. Shinohara noted that the continent’s economic slowdown has gotten worse, curbing growth worldwide through its impact on export-oriented emerging economies.
Although Shinohara said “there are positive moves” to solve the eurozone’s debt woes, the IMF is expected to revise downward its forecast for global economic growth in the World Economic Outlook it will release next week.
However, he called on eurozone countries to swiftly implement agreements to reduce their budget deficits, boost economic growth and promote economic integration throughout the entire currency zone.