Labor market reform needed for Japan's sustained growth: IMF
High-ranking official says government should maintain fiscal, monetary stimulus
ALEXANDER MARTIN and SHOTARO TANI, Nikkei staff writers
TOKYO -- The Japanese government needs to move forward with labor market reforms to increase productivity and boost wages, the International Monetary Fund said Monday in the concluding statement of its annual review of the Japanese economy.
"Closing gaps between regular and non-regular workers, increasing mobility across firms, and 'equal pay for equal work' are key to boosting overall wages," David Lipton, the IMF's first deputy managing director, said in Tokyo at a press conference following release of the report.
For now, wages in Japan have been barely growing and private consumption remains sluggish. But Japan has recently suffered from a structural labor shortage due to demographic shifts -- a situation where boosting productivity is necessary to achieve growth.
Also, in response to some high-profile deaths from overwork, the administration of Prime Minister Shinzo Abe is promoting work reforms that include a cap on overtime and measures to address wage gaps between regular and non-regular workers.
While commending these efforts, Lipton said Japan should take further measures to diversify and enhance the workforce, including further support for female and older workers and more use of foreign labor.
"The work style reforms are a beginning to a set of reforms that can be very meaningful in structurally changing the way in which the labor market functions, and we are supportive of that," he said.
Looking ahead, Lipton said the IMF expects Japan to see growth of 1.3 percent this year and 0.6% in 2018, and said that despite a slow uptick, inflation will likely remain below the 2% target over the next few years.
The IMF stressed the need for the Bank of Japan to maintain its accommodating stance as regards monetary policy and be willing to provide additional easing if downside risks materialize. It said the BOJ should strengthen its communication framework by phasing out references to annual JGB purchase targets.
To hold long-term interest rate at around 0%, the central bank has said it will continue purchasing JGBs at a pace that will boost its government bond holdings by about 80 trillion yen annually. In practice, however, it has fallen short of that figure, due to worries that it would cause a shortage of JGBs as well as lower the policy rate below its target. The IMF said phasing out references to such targets could improve public understanding of monetary policy and reduce uncertainty.
The IMF also addressed Japan's huge debt, saying that in order to protect growth and to put "debt on a stable path," the nation should take a gradual approach, with annual debt consolidation in the primary balance of 0.5% of GDP.
This approach would likely signal that the government will fail to meet its target set in 2015 to turn the country's primary deficit of national and local governments to the black by fiscal 2020.
"Understanding that Japan's debt is high, one does of course have to balance the imperative of consolidating in order to maintain market confidence in Japan and weighing that against the other objective, which is to sustain growth in the economy," Lipton said. "We think it is not yet time to be withdrawing stimulus, but that can begin soon," he added.