WASHINGTON – The International Monetary Fund sharply raised its economic growth estimate for Japan in a report released Tuesday, saying the central banks’ new monetary easing policy will provide substantial stimulus.
In its semiannual World Economic Outlook report, the IMF projected that the nation’s economy will grow 1.6 percent this year in terms of inflation-adjusted gross domestic product, up from 1.2 percent in its January estimate.
The Washington-based organization also doubled its 2014 growth forecast for Japan to 1.4 percent from the earlier projected 0.7 percent.
“In Japan, the new quantitative and qualitative easing framework of monetary policy adds substantial further monetary stimulus and should help accelerate the achievement of the Bank of Japan’s new 2 percent inflation target,” the report said.
The deflation-combating economic policies of Prime Minister Shinzo Abe and the aggressive monetary easing introduced under the leadership of recently appointed BOJ Gov. Haruhiko Kuroda have driven the value of the yen sharply lower against the dollar, causing several other major economies to complain that Japan is trying to lower the value of its currency.
“Concerns resurfaced once again recently when looser monetary policy in Japan and other factors prompted a large depreciation of the yen,” the IMF report said.
But the IMF said complaints about competitive exchange rate depreciations “appear overblown.” Noting that there seem to be no large deviations of major currencies from medium-term fundamentals, the organization said, “The evidence on valuation of the yen is mixed.”
As for the global economy, the IMF projected it will expand 3.3 percent this year, down 0.2 percentage point from its January estimate, while forecasting 4.0 percent growth in 2014, unchanged from its earlier projections.
“Global economic prospects have improved again but the road to recovery in the (world’s leading) advanced economies will remain bumpy,” the report said.
While policymakers in those countries appear to have successfully defused two of the biggest short-term threats to the world economy — the break up of the eurozone amid its sea of debt and a sharp fiscal contraction in the U.S. by its so-called fiscal cliff — more downside risks remain as a result of both issues.
For the United States, the IMF thus downgraded its growth estimate to 1.9 percent this year, compared with 2.1 percent in its January forecast, while trimming its growth projection for 2014 by 0.1 point to 3.0 percent.
“A failure by the U.S. Congress to replace the automatic spending cuts with back-loaded measures at the end of the current fiscal year would entail somewhat lower-than-projected growth in late 2013 and beyond,” the report said.
On Europe’s single currency bloc, the IMF estimated that its economy will contract 0.3 percent this year, against an earlier projection of a 0.1 percent contraction, while leaving its growth forecast for 2014 steady at 1.1 percent.
The IMF was also slightly bearish about the performance of emerging and developing economies, cutting its growth estimate to 5.3 percent from 5.5 percent this year and trimming its projection for next year by 0.1 point to 5.7 percent.
Among major emerging economies, China was projected to grow 8.0 percent this year and 8.2 percent in 2014, down 0.1 point and 0.3 point from the IMF’s January forecast. India was forecast to grow 5.7 percent in 2013 and 6.2 percent the following year, down 0.2 point and 0.1 point from the fund’s January projections.