IMF Issues Triple Warning to Japan

Odaily News The International Monetary Fund (IMF) released a report on February 17, warning the Japanese government to maintain the independence of the Bank of Japan, control fiscal expansion, and avoid addressing livelihood issues by cutting consumption taxes. The release of this report coincides with the nomination election for Japan's next prime minister. It is reported that the market is closely watching whether Sanae Takaichi will oppose further interest rate hikes by the central bank, as well as her previously proposed two-year commitment to "zero food consumption tax." Regarding monetary policy, the IMF pointed out that maintaining the independence and credibility of the Bank of Japan helps stabilize inflation expectations, and stated that the Bank of Japan "should continue to exit monetary easing, aiming for the policy rate to reach a neutral level by 2027." On fiscal policy, the IMF believes that further fiscal easing is not advisable in the short term. This contradicts Takaichi's proposal of "responsible proactive fiscal policy." The IMF believes that although Japan currently has some fiscal space, it still needs to maintain fiscal restraint to solidify fiscal buffers and preserve its ability to respond to shocks. The IMF predicts that in the long term, Japan's government fiscal deficit will widen, expenditure pressures will increase, and total public debt will further grow. (Jin10)