Horst Koehler, managing director of the International Monetary Fund, on Tuesday urged Japan to promote structural reforms to turn a fragile economic recovery into stronger, self-sustained growth.

“There are welcome signs that Japan may at last be emerging from recession,” Koehler said in a speech at a symposium commemorating the 50th anniversary of Japan’s entry into the IMF and the World Bank.

“But the consensus among forecasters is that the recovery will be modest, heavily dependent on external demand and, in particular, linked to economic developments in the United States,” Koehler said. “Restoring a growth performance that corresponds to Japan’s demonstrated potential demands nothing less than an integrated policy approach based on decisive restructuring of the banking and corporate sectors and macroeconomic policies designed to bring an end to deflation.

“Prime Minister (Junichiro) Koizumi deserves strong support for his commitment to carry through the structural reforms needed to restore confidence in the Japanese economy and foster sustained growth and job creation.”

The comments came as the government’s top economic policy-setting panel prepares to map out a fresh steps to boost Japan’s wallowing share prices.

Koehler also welcomed the ongoing investigation by the IMF and the World Bank into Japan’s financial sector.

“I welcome the ongoing assessment of Japan’s financial sector, and look forward to a timely conclusion and active followup of its recommendations,” he said.

The investigation, known as the Financial Sector Assessment Program and introduced jointly by the IMF and the World Bank in 1999 following the 1997-1998 Asian financial crisis, began in Japan in June.

On the global economy, Koehler said that although growth prospects have weakened somewhat in the U.S. and Europe, the IMF’s assessment is that recovery will continue.

“But there are still risks and uncertainties, related especially to regional political tensions, oil prices and developments in international financial markets,” he said. “What is required now above all is strong leadership from the advanced economies, to bolster investor confidence and help sustain and strengthen the recovery.”

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