The government of Prime Minister Shinzo Abe should step up efforts at revamping Japan’s labor market, encouraging businesses to raise wages and restoring the nation’s debt-ridden finances through consumption tax increases as part of efforts to spur the flagging “Abenomics” policy mix, the International Monetary Fund said Tuesday.
With Japanese policymakers finding it increasingly difficult to rely on exports, increased debt and further monetary easing for revitalizing the country’s economy and achieving the Bank of Japan’s 2 percent inflation target, the IMF urged Japan to promote labor market reform by addressing the wage gap between regular and nonregular employees, as well as boosting labor force participation by female, elderly and foreign workers.
“The ambitious targets of Abenomics — consumer price inflation at 2 percent, real gross domestic product growth at 2 percent and a primary budget balance by 2020 — remain out of reach under current policies,” the IMF said in its annual review of Japan’s economy.
Japan has “limited room for monetary and fiscal stimulus,” given its ballooning public debt and the introduction of a negative interest rate, the report said.
“Abenomics needs a significant policy upgrade to regain traction,” it said. “Ambitious income policies supported by demand stimulus are a priority to spur inflation through wage-price pressures.”
This, according to the report, calls for incentivizing profitable companies to increase wages, raising administratively controlled wages in line with the inflation target and addressing the gap in wages and job security between regular and nonregular employees.