IMF Warns Longer QE Needed in Japan

May 30, 2014 Share Print 0

The Bank of Japan (BoJ) may need to keep up its stimulus drive for an “extended period”, the International Monetary Fund said Friday, as it warned again that Tokyo must follow through on promised economic reforms.

Fears that a recent sales tax rise would dent a recovery in the world’s number three economy have boosted speculation that the BoJ would be forced to expand its monetary easing campaign to counter any downturn.

The Washington-based IMF said that the bank’s target to reach 2.0 per cent inflation by next year — aimed at conquering years of falling prices which held back growth — would most likely be reached by 2017 instead.

“The BoJ should act quickly if actual or expected inflation stagnates or growth disappoints,” the Fund said in its annual review of Japan’s economy.

“The current aggressive pace of monetary easing may need to be maintained for an extended period.”

The IMF has been upbeat on Prime Minister Shinzo Abe’s policy blitz — a mixture of big government spending and central bank monetary easing dubbed Abenomics, which is designed to drag the economy out of years of deflation and laggard growth.

But the plan’s so-called “third arrow” — reforms that include more flexible labour markets and free-trade deals — have been more talk than action so far.

via Channel News Asia

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.