OECD Calls for Japan’s Careful Macroeconomic Policy Management

Paris, May 13 (Jiji Press)–The Organization for Economic Cooperation and Development suggested in a report Wednesday that Japan’s macroeconomic policies “be calibrated carefully.” As the East Asian economy is shifting toward “a new equilibrium in terms of higher prices and wages,” careful policy adjustments are required to “balance keeping inflation around the 2 pct target (set by the Bank of Japan), ensuring fiscal sustainability and boosting potential growth notwithstanding an aging population,” according to the OECD Economic Survey of Japan. The OECD expects Japan to post “moderate but robust” growth through 2027 supported by domestic demand. But the forum of advanced economies has revised down its 2026 forecast for the country’s real growth to 0.7 pct from 0.9 pct it projected in March, due chiefly to surging crude oil prices since the start of the ongoing war in Iran. “Downside risks are elevated,” it said in the report. Expecting that “price pressures will increase in the near-term due to higher energy prices,” the report underscores the importance of continuing gradual monetary policy normalization and keeping inflation in the vicinity of the target. To curb debt-servicing costs amid rising interest rates, the report calls for giving priority to constantly cutting public debt. The OECD also finds that Japan needs to ensure its fiscal sustainability by reducing government spending through pension and healthcare reforms and increasing tax revenues by raising the consumption tax rate. To tackle the issue of serious labor shortages, it recommends boosting female labor force participation rates and expanding the role of foreign workers. Furthermore, the OECD advises that Japan enhance its competitiveness by supporting start-ups as well as existing small businesses and redouble efforts to attract direct investments to increase productivity. END [Copyright The Jiji Press, Ltd.]