IMF Urges Japan to Raise Consumption Tax as Planned

October 5, 2018

Tokyo- International Monetary Fund Managing Director Christine Lagarde called on Japan Thursday to raise the consumption tax rate from 8 pct to 10 pct in October next year as planned in preparation for a further increase in the country's social security costs amid rapidly aging population.

At a press conference in Tokyo, Lagarde said that the Japanese economy is in a phase of strong growth and this provides the country with a good opportunity to do what it really needs to do.

In a statement released the same day to wrap up its annual review on the Japanese economy, the IMF said that "consolidation should center on gradual increases in the consumption tax until the rate reaches at least 15 pct."

The international lending agency pointed out that the tax hike is expected to "adversely affect consumption and overall growth in 2020." To lessen the impact, Japan is advised to take measures to spur demand for durable goods such as automobiles and homes, it said.

It also recommended that the government give companies tax incentives to help them raise wages.

Prime Minister Shinzo Abe's reflationary policy, called Abenomics, "remains appropriate," the IMF found. But a "credible fiscal framework for the medium and long-term is needed to reduce policy uncertainty, address demographic challenges, and mitigate debt sustainability risks," it suggested.

The fund also said the Bank of Japan's "accommodative monetary policy stance should be maintained, but clear forward guidance and improved credibility of the monetary policy framework would help lift inflation expectations." Jiji Press