Horst Koehler, managing director of the International Monetary Fund, said Tuesday he believes Japan's economic recovery is sustainable and commended the nation for its financial system reforms that have seen steady falls in banks' bad loans.

"I do think it is sustainable," Koehler told reporters in Tokyo after meeting with Heizo Takenaka, state minister in charge of economic and fiscal policy, when asked about the current pace of recovery in the world's second-largest economy.

Koehler told reporters after meeting with Prime Minister Junichiro Koizumi: "This time, the recovery is not based on additional spending . . . for public works and so on, but based on investment and of course good exports. We do think it will after some time also translate to stronger consumption so that the recovery is home-based in substance, and that's a good signal."