Japan IMF says no easing needed in October

The Bank of Japan does not need to expand monetary policy in October, the IMF's mission chief for Japan Kalpana Kochhar said today (September 4th).

The statement comes as speculation is rife that the Bank of Japan (BOJ) will ease its monetary policy at the end of October.

Investors expect QQE mesures in October

Takuji Aida, an economist at Societe Generale, said: "It will be necessary for the government to continue to support economic sentiment through policies until the real economy and inflation strengthens."

He added: "In the extraordinary diet session to be held in the autumn, we expect economic measures will be implemented in order to accelerate the movement towards a complete exit from deflation. We also expect the BoJ to implement additional quantitative and qualitative easing (QQE) measures, probably in October."

But the IMF said there is no need to do so even if the country cuts its growth and price forecasts, Reuters reports. Instead, it believes the BOJ should focus on inflation expectations in deciding whether to deploy additional stimulus.

"The BOJ basically looks at inflation expectations and the output gap. Even if we were to lower our forecast, we see the output gap closing. As long as there's not a very sharp decline in either, one could say (the BOJ is) on the right path," Mrs Kochhar noted.

She said there was a good chance the IMF would cut Japan's economic growth forecasts for 2015 and 2016 in its next World Economic Outlook report as China's slowdown and sluggish Asian demand weigh on exports.

"Bumpy recovery"

"So far the recovery in Japan this year has been frankly disappointing and bumpy," she conceded, adding that wage gains have been particularly weak despite a tightening labour market.

Japan's economy shrank at an annualised pace of 1.6 per cent in the second quarter of the year, following an expansion of 4.5 per cent in the first quarter. The government blamed the GDP contraction on weak exports to China and the US, as well as poor consumer spending as a result of bad weather.

The country has been facing difficulties in recent years including stagnant wages, a decline in business investment, a fall in business spending and a drop in consumer spending due to a sales tax increase from five to eight per cent in April 2014.

This is putting pressure on Shinzo Abe to revamp his "Abenomics", a programme that combines aggressive monetary expansion, fiscal stimulus and structural reforms designed to revive the economy and end years of stagnation.