The International Monetary Fund says that Japan needs push and fulfill its “three arrows” economic stimulus program in order to lift itself from decades of deflation. It also needs to be able to come up with a “credible” mid-term plan, which includes following through with their fiscal and structural reforms.
The annual review of the Japanese economy says that Prime Minister Shinzo Abe’s aggressive efforts, dubbed “Abenomics” have so far given the country a strong boost and has somehow revitalized the stagnant economy. The forecast they gave was that Japan will hold on to the 2% growth until the end of the year and inflation will gradually pick up. But all this is dependent on Abe pushing for the third arrow which is economic reforms. After the moderate success of his monetary and fiscal stimulus efforts, failure to follow through on the fiscal and structural reforms may lead to “over reliance on monetary policy with negative consequences for Japan and the global economy.”
The IMF reiterated its support of Abenomics which they believe is responsible for getting the world’s third-largest economy to a 4.1% growth in the first quarter of 2013. The increase in domestic demand, as well as the lower yen that has enhanced exports have all contributed to the economic growth. But the IMF still brands Japan’s recovery outlook as “favorable, but unusually uncertain,” primarily because they have had very little policy experience in trying to escape a prolonged period of deflation. They also cite the lack of details about the proposed reforms as a sign of uncertainty about their fiscal and structural reforms ambitions. “Concrete steps to raise employment, increase labor market flexibility, deregulate agriculture and the services sector, and enhance the role of the financial sector in supporting growth, would be key,” the report said.
[ via AFP ]
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