Japan's
economy still needs support from ultra-loose monetary policy despite budding
signs of recovery, a senior IMF official said, stressing that it was premature
for the
central bank to consider withdrawing stimulus any time soon.
Mitsuhiro
Furusawa, the International Monetary Fund's deputy managing director, said
Japan should proceed with gradual increases in the sales tax to rein in its
huge public debt as its economy benefits from a rebound in global demand.
But Japan's
economy has not strengthened enough to pull the plug on monetary support,
Furusawa said, adding that continued ultra-loose policy was crucial to make the
recovery sustainable.
"I
don't think we've reached that time yet," Furusawa told Reuters on Friday,
when asked whether the time is ripe for the BOJ to consider withdrawing its
monetary stimulus.
"As a
whole, it's a good thing that easy monetary policy continues in Japan," he
said on the sidelines of the Asian Development Bank's annual meeting in
Yokohama, eastern Japan.
Japan's
economy has shown signs of life, as exports rose the most in over two years in
March and manufacturers' confidence hit the highest since the global financial
crisis a decade ago.
BOJ Governor
Haruhiko Kuroda told a CNBC interview on Friday that he was confident inflation
will accelerate "significantly" with massive monetary stimulus and
fiscal support.
With the
economy out of the doldrums, many analysts polled by Reuters expect the BOJ's
next move to be a tightening, rather than a further easing, of monetary policy.
But core
consumer prices for March rose just 0.2 percent from a year earlier, well below
the BOJ's 2 percent target, a sign the Japanese central bank will lag behind
its major counterparts in withdrawing monetary stimulus.
On fiscal
policy, Furusawa said Japan should proceed with gradual increases in the sales
tax, so that it can avoid being forced to hike sharply and abruptly, to rein in
its debt.
"Considering
Japan's fiscal state, it's desirable to gradually raise the tax rate. There's
no doubt Japan should pursue fiscal consolidation given the size of its public
debt," he said, when asked whether Japan should proceed with a scheduled
increase in the sales tax hike in October 2019.
Japan's
government has twice delayed a plan to raise the sales tax to 10 percent from 8
percent, after an earlier hike from 5 percent hurt consumption and growth.
Prime
Minister Shinzo Abe has said he will proceed with the tax hike in October 2019,
though some analysts say he may scrap the plan to prioritize growth over fiscal
discipline.
Tax hikes
and spending cuts are considered crucial to curb Japan's huge public debt
which, at twice the size of its economy, is the worst among advanced economies.
On China,
Furusawa said a gradual slowdown in growth wasn't a problem because the economy
is undergoing structural changes.
"The
fact that credit growth is accelerating at a pace exceeding that of GDP is
worrying. But Chinese authorities are well aware of this issue, so I think the
situation is manageable," he said.
*REUTERS*
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