World Economy

Premature for BoJ to Withdraw Stimulus

Premature for BoJ to Withdraw StimulusPremature for BoJ to Withdraw Stimulus

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, Reuters reported.

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% from a year earlier, well below the BoJ’s 2% 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% from 8%, after an earlier hike from 5% hurt consumption and growth.

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