Japan's economy is gaining strength following the global recession but, with a sharpened global focus on sovereign risks in some countries, the government needs to draw up a credible fiscal adjustment plan to secure long-term economic health, IMF economists say.
“Bringing down the debt ratio will require a large and protracted adjustment and, with global scrutiny of public finances on the rise, the need for early and credible fiscal adjustment has increased,” said James Gordon, IMF mission chief for Japan. “We welcome the government’s proposed fiscal strategy and look forward to further details,” Gordon added.
The IMF believes Tokyo’s new fiscal strategy would be boosted by a gradual increase in the consumption tax, and that adjustment should begin next year, with authorities aiming for a 1 percent of GDP annual reduction in the primary deficit over the next decade.
The recent turmoil in Europe has highlighted Japan’s vulnerability to sovereign risk.
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© International Monetary Fund
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