The Organization for Economic Cooperation and Development will recommend that Japan maintain its easy-credit policy and avoid fiscal tightening to strengthen its fragile economic recovery.
A draft joint communique for the OECD’s June 26-27 ministerial meeting in Paris says Japan’s economic recovery “appears to be in place, but uncertainty lingers as to its strength and duration.”
“The current easy stance of monetary policy should be maintained and fiscal consolidation should be avoided in the short run,” the draft states, pointing to the need to “aim at sustaining the recovery in the short term without compromising the long-term health of the economy.”
But it also says Tokyo needs to “start putting in place a credible medium-term strategy to address high and growing public debt levels” and to pursue “speedy implementation of structural reforms.”
The draft meanwhile says the United States may need to further raise key rates and avoid fiscal easing to prevent economic overheating.
It urges U.S. monetary authorities to “achieve an orderly reduction in demand growth to prevent overheating and avoid the need for a much sharper subsequent tightening of policy.”
“Hence, further rises in interest rates may be called for and fiscal policy should not be relaxed,” the draft says.
The draft also calls for slowing growth in Britain and Canada, and taking a more neutral monetary policy and avoiding fiscal easing in other European Union nations.
The draft highlights the need for OECD member countries to adjust their policies in light of the so-called “new economy,” which is propelled by innovations in information and communications technologies (ICT), marking the first time that the ministerial gathering takes up the issue seriously.
The draft has it that the ministers “renewed their support for the launch as soon as possible of a broad-based round of multilateral trade negotiations” under the World Trade Organization, while focusing more on ways to address the concerns of developing nations and nongovernmental organizations.
The annual policymaking meeting of the Paris-based club of 29 industrial nations will issue the final communique. to wrap up discussions, setting the stage for the July 21-23 summit of the Group of Eight major nations in Okinawa Prefecture.
According to the draft, the ministers see the world economy as “developing more favorably than it has for some time,” with nearly all the OECD countries enjoying their fastest growth since 1989 and emerging economies recovering “vigorously” from the 1997-98 financial crises with continued rapid growth expected.
“However, considerable uncertainty surrounds prospects for commodity and financial markets and their implications for the world economy,” the draft says, noting that the current widespread economic optimism “should be tempered by realism” to avoid the recurrence of earlier global boom periods that ended in inflation, financial instability and recession.