IMF Guidance for Bank of Japan

By David Lawder

WASHINGTON (Reuters) – The International Monetary Fund (IMF) indicated that the Bank of Japan (BOJ) should remain data-dependent and gradually raise policy rates as inflation data suggests. The IMF reassured that the BOJ is working towards achieving the 2% annual inflation target.

IMF spokesperson Julie Kozack stated, “Our advice is that the BOJ should continue to be data-driven and to gradually raise the policy rate over its policy horizon, if the inflation forecasts bear out that this is the right way forward.”

New Prime Minister Shigeru Ishiba mentioned that Japan does not currently require additional rate hikes, leading markets to believe that significant increases may be delayed. Ishiba also committed to new fiscal measures aimed at assisting households amid rising prices.

Kozack emphasized that Japan’s economy continues to grow, yet broad price increases are keeping headline inflation above the BOJ’s target of 2%.

“Our assessment is that the economy does remain on track to achieving the 2% target sustainably over the medium-term,” Kozack stated. She further noted that Japan’s fiscal policy should concentrate on “growth-friendly” consolidation for rebuilding financial buffers and ensuring debt sustainability.

This consolidation will rely on both revenue and spending strategies, aiming to strengthen market confidence in Japan’s ability to maintain sustainable debt, which is crucial for the nation’s growth.