The International Monetary Fund on Friday cut its economic growth projection for Japan in 2001 to a contraction of 0.2 percent from an April estimate of 0.6 percent growth and urged the Bank of Japan to expand its quantitative monetary-easing steps.
The IMF also called on Japan to promote Prime Minister Junichiro Koizumi's economic reforms, particularly emphasizing the need to get rid of bad loans at banks. It even proposed that in order to prevent a credit crunch, public funds be injected into relatively sound banks after radical writeoffs of bad loans.
But the IMF cautioned against tightening fiscal policy too rapidly as that could damage the fragile economy.
IMF directors "were concerned that Japan could re-enter a cycle of slowing activity, rising bankruptcies and a deteriorating banking system, which would, in turn, exacerbate the global downturn," the Washington-based institution said in a report on economic conditions.