Japan’s debt is unsustainable and could climb to almost three times the size of its economy by 2030 unless the government does more to cut its budget, the International Monetary Fund said.
The government should consider rules to curb spending, limits on extra budgets and independent assessments of its projections, the IMF said. Reliance on optimistic economic assumptions risks harming confidence in its plan to put the budget into surplus, excluding interest payments, by 2020, according to a report released on Thursday in Washington.
“Doubts about long-term fiscal sustainability could lead to a jump in the sovereign risk premium, forcing abrupt further fiscal adjustment with adverse feedback to the financial system and the real economy,” the IMF said. “Japan’s extremely high financing needs point to vulnerabilities to changes in market perceptions.”
The Bank of Japan should stand ready to increase monetary stimulus further and provide stronger guidance to markets, the IMF said, projecting inflation won’t reach the BOJ’s target in the medium term. Japan’s exchange rate, adjusted for its trade and inflation, is moderately weaker than is consistent with its fundamentals, the IMF said.
