The International Monetary Fund issues a triple warning to Japan

Odaily Planet Daily 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 report was issued coinciding with Japan’s prime ministerial nomination election. It is reported that the market is closely watching whether Sanae Takaichi will oppose further interest rate hikes by the central bank and her previous commitment to a two-year “zero food consumption tax” policy. 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, with policy rates reaching neutral levels by 2027.” On fiscal policy, the IMF believes that short-term fiscal easing is not advisable, which contradicts Takaichi’s proposal of “responsible proactive fiscal policy.” The IMF considers that Japan currently has some fiscal space but still needs to exercise fiscal restraint to solidify fiscal buffers and maintain the capacity to respond to shocks. The IMF predicts that in the long term, Japan’s government fiscal deficit will widen, spending pressures will increase, and total public debt will further grow. (Jin10)