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.
"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.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.