Japan should capitalize on its current economic expansion by pushing for labor and other structural reforms, the International Monetary Fund said Monday.
The IMF also said the country’s monetary policy should be accommodative, calling on the Bank of Japan to “carefully calibrate” its yield curve control policy aimed at guiding long-term interest rates around zero and enhance its communication with market participants.
“We feel the best policy is to make the most of the positive (economic) momentum at present and to push ahead with needed reforms,” IMF First Deputy Managing Director David Lipton told a news conference in Tokyo.
In its assessment of Japan released Monday, the IMF said the country needs a well-coordinated reform package combining continued fiscal and monetary support with structural reforms.
Japan’s economy has been on its longest streak of expansion since 2006 thanks to robust overseas demand, particularly in other parts of Asia.
The IMF pointed out that Japan’s labor shortages have yet to feed through to wages and inflation remains subdued, citing as policy challenges “demographic headwinds and an unprecedented level of public debt.”
The government of Prime Minister Shinzo Abe is seeking to promote labor reforms, including imposing a binding cap on overtime hours and eliminating discrimination between regular and nonregular workers.
As market credibility is significant in making monetary policy a success, the IMF proposed steps for the central bank to strengthen its communication framework, including “phasing out references” to its annual purchase targets of government bonds. The BOJ has set ¥80 trillion as its annual purchase target.