IMF calls for Japan to coordinate fiscal stimulus with further BOJ easing

[TOKYO] The International Monetary Fund on Tuesday said Japan should coordinate fiscal stimulus with further central bank easing measures, which could include rate cuts and more asset purchases.

The report came as the government unleashes new fiscal stimulus and the central bank announced a comprehensive review of monetary policy, keeping alive expectations for "helicopter money" - printing money for government debt.

The IMF said there were merits in using all policy tools, including asset purchases, purchases of assets held outside the banking system, and a modest additional cuts in deposit rates.

"Fiscal and monetary actions should be closely coordinated in terms of timing, mix, and level of stimulus," the IMF said in its staff report for its annual consultation with Japanese policymakers.

The report followed an earlier version issued in June, in which the global lender urged Tokyo to overhaul its economic agenda by prioritising income policies and labour market reforms.

The IMF on Tuesday called for more sustained, balanced, and coordinated demand support to ensure the success of income policies.

The agency said the Japanese government should do more to encourage companies to raise wages and should also take steps to boost a shrinking labour supply.

It said short-term fiscal and monetary policy stimulus could make it easier for higher wages to lead to gains in consumer prices.

However, it warned that encouraging companies to raise wages may not necessarily reduce the risk of deflation if companies try to hire more part-time workers, who earn less than full-time employees.

The BOJ on Friday decided to double purchases of exchange-traded funds (ETF), but kept its base money target unchanged at 80 trillion yen and maintained the existing pace of purchasing non-ETF assets, such as Japanese government bonds.

It left unchanged the 0.1 per cent interest it charges on a portion of excess reserves financial institutions park with the central bank, underscoring some market views that monetary policy is reaching its limits.

REUTERS