The Bank of Japan should stick with its expanded quantitative easing to achieve its inflation target, but this may not be enough to foster sustainable economic growth unless it is coupled with structural reforms, the OECD said on Tuesday.
Japan’s government should stay with its plan to double the sales tax to 10 percent, compile a detailed plan to return to primary budget surplus in 2020 and boost revenue from other taxes, the Organisation for Economic Cooperation and Development said.
The size of fiscal consolidation needed means Japan does face the risk of a spike in interest rates that would hurt the financial system due to its large exposure to Japanese government bonds, the Paris-based think tank said.
“The new quantitative and qualitative monetary easing should be implemented to meet the new 2 percent price stability target, although this may not be enough,” the OECD said in its economic survey of Japan.
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