IMF Advises Japan to Continue Raising Rates if Inflation Data Justifies It, According to Reuters

By David Lawder

WASHINGTON – The International Monetary Fund (IMF) stated on Thursday that the Bank of Japan (BOJ) should maintain a data-driven approach and proceed with gradual increases in policy rates according to inflation trends. The IMF indicated that the central bank is on course to return price growth to its 2% annual target.

"Our recommendation is that the BOJ should continue to rely on data and gradually raise the policy rate as long as inflation forecasts suggest this is the appropriate path forward," said IMF spokesperson Julie Kozack during a regular news briefing.

Japan’s new Prime Minister, Shigeru Ishiba, remarked on Wednesday that the country is not currently in a situation that necessitates an additional rate hike, a statement that was perceived by the markets as lessening the likelihood of a near-term increase. Ishiba has also committed to introducing new fiscal measures to alleviate the burden of rising prices on many households.

Kozack noted that Japan’s economy is continuing to grow, yet broad price increases have kept overall inflation above the BOJ’s 2% target.

"Our evaluation suggests that the economy is still on track to achieve the 2% target sustainably over the medium term," Kozack said. She added that Japan’s fiscal policy should prioritize "growth-friendly" fiscal consolidation to help rebuild economic buffers and ensure debt sustainability.

This fiscal consolidation could include both revenue and spending measures to bolster confidence in Japan’s ability to manage its debt, which is vital for the country’s economic growth, she emphasized.