IMF: Japan's inflation still 'stubbornly low'

Economy 6/19/2017, 8:20 AM
IMF: Japan's inflation still 'stubbornly low'

The recent surge in growth was underpinned by fiscal and monetary stimulus and dampened by demographic factors, the International Monetary Fund said on Monday in a report about Japan. Analysts added inflation remains 'stubbornly low', where overall risks are tilted to the downside. The scheduled removal of fiscal support would weaken the growth momentum, IMF said.

Labor market issues were highlighted as some of the most critical for further recovery. The government is slow in implementing reform in the sector as the "third arrow" of Abenomics, according to the assessment, in which observers stated widespread labor shortages haven't yet resulted in sustained wage growth and upward price pressure. "Low labor mobility, a strong preference for job security, and wage setting based on past inflation" were stressed as the main barriers. IMF said the initiative to introduce "equal pay for equal work" for regular and non-regular workers should be accelerated alongside other related measures.

Inflation is expected to rise to 0.7% this year with higher energy prices and a narrowing output gap, but household income and spending may trail other factors, the report said. A slowdown in growth is seen chipping 0.1 percentage points off the measure in 2018. "Financial firms face a challenging environment as low interest rates have reduced profitability and led to a search for higher yields – inducing many banks and insurance firms to incur new and less understood risks. Credit growth picked up in the last quarter of 2016, while overseas investment and real estate lending increased," the document notes.

TeleTrader Newsroom / IT

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