Japan needs to speed up the pace of implementing
structural reforms if its economic recovery is to continue, the International
Monetary Fund (IMF) has warned in a recent regional review.
While the report predicts sustained upward growth for the Asian
region, the Washington-based institution has also called for a restructuring of
Japan’s “Abenomics” policies in order to prevent a
slowdown in economic growth and negative spillovers
for Tokyo’s trading partners.
Launched by Japan’s Prime Minister Shinzo Abe in late 2012, Abenomics
refers to a series of economic policies based on three “arrows” – monetary
stimulus, fiscal stimulus, and structural reform. In line with this approach,
the Japanese central bank has been pursuing an aggressive quantitative easing
programme in order to combat over a decade’s worth of deflation and hit a two percent inflation rate.
According to the IMF report, the central bank’s
efforts have been largely successful, while short-term fiscal stimulus packages
have met with similar moderate success.
It ultimately called for a continuation of current
monetary policy, but has suggested emphasising less the expected deadline for a
two percent inflation rate within the initially
predicted two years.
The Fund report has further proposed a continuation
of consumption tax increases complemented by pension and healthcare reforms, as
well as significant supply-side reforms such as market deregulation and changes
in corporate governance.
Initial IMF reviews suggested that a successful
implementation of all three arrows of Abenomics would
result in moderate positive spillovers to other
countries. However, if negative real wage growth persists it could have adverse
effects for Japan’s trading partners in the form of yen appreciation and
reduced demand for foreign imports.
Trade liberalisation, such as through bilateral or
regional deals, are part of the "third arrow" of Abenomics
that deals with structural reform, an area particularly highlighted by the IMF
report as being in need of more rigorous implementation.