Japan should do more to end deflation, cut its budget deficits and optimize its labor market to sustain the country's recent economic growth, the Organization for Economic Cooperation and Development said Thursday.
The annual report on the Japanese economy by the Paris-based group says Japan should halt years of deflation -- a continuous decline in prices that can stall economic activity by eroding profits and salaries while increasing the weight of debts.
The report blames Japan's snowballing budget deficits, which have boosted public debt to more than 160 percent of gross domestic product, the highest level among the OECD's 30 members.
"The current fiscal situation is clearly not sustainable," the report says.
It urges the government to broaden its tax base and boost consumption taxes to increase government revenue.
Recent economic growth on the back of strong exports, especially to China, and progress in corporate restructuring and economic reforms, has raised hopes that Japan is emerging from a decade of stagnation.
But Japan "still faces a number of serious headwinds to sustained growth," the report says.