INTERVIEW: Japan Has Time to Restore Fiscal Health, IMF Exec Says

By Adriana Reinecke Washington, Oct. 24 (Jiji Press)–Japan is unlikely to face an immediate crisis in terms of fiscal soundness because the average maturity of outstanding Japanese government bonds is relatively long, senior International Monetary Fund official Nada Choueiri has indicated in an interview with Jiji Press. Choueiri, deputy director of the IMF’s Asia and Pacific Department, urged Japan to leverage this time to formulate a concrete plan for fiscal consolidation although Japanese long-term interest rates are rising as the country is “moving to a new, better, normal situation.” A consumption tax cut should be avoided, and fiscal measures should be highly targeted, she also said. Japan is “overcoming deflation, and this is a positive thing,” Choueiri said, noting that interest rates will rise as the economy normalizes. She said that the average remaining period to maturity is around nine years for outstanding JGBs, meaning that “the debt burden is going to increase very, very slowly.” This “gives time for the (Japanese) fiscal authorities to adjust their spending and to consolidate,” she explained. With medical and pension costs expected to rise in the future due to Japan’s aging population, “our advice is to use that time to put in place a (fiscal) consolidation plan” so that the country’s budgets can absorb the costs when the interest burden increases, she said. “We understand that there may need to be some specific support,” Choueiri said. But such support “has to be very well targeted to,” for example, vulnerable people whose incomes are being squeezed by rising food prices, and also has to be “temporary,” she added. Choueiri also called for securing adequate funding for such measures. The government of new Japanese Prime Minister Sanae Takaichi, an advocate for aggressive fiscal spending, aims to enact by year-end a fiscal 2025 supplementary budget to finance envisaged economy-boosting measures. Choueiri said that a cut in the consumption tax is “not a targeted measure” because it would benefit high- and low-income earners alike, adding that “this would not correspond to” the IMF’s advice. A coalition agreement between Japan’s ruling Liberal Democratic Party and its new partner, Nippon Ishin no Kai (Japan Innovation Party), includes a plan to consider lowering the tax for food and beverages for two years. The IMF said in its latest economic outlook report that Japan’s economic growth will slow to 0.6 pct in 2026 from 1.1 pct in 2025. Given Japan’s declining population, its potential growth rate is around 0.5 pct, according to Choueiri. Improvements in productivity through investment in artificial intelligence and other new technologies and “more reforms” to promote immigration and expand the labor force could help boost growth, she said. END [Copyright The Jiji Press, Ltd.]