IMF’s Zhu Says Japanese Debt Overhang Is Getting More Serious

International Monetary Fund official Zhu Min said Japan’s debt burden is becoming “more serious” as the government takes extra steps to stimulate growth in the world’s third-biggest economy.

“The debt overhang is becoming more serious so they need to go further in fiscal consolidation,” Zhu, a deputy managing director at the IMF, said in an interview in Hong Kong today, where he’s attending the Asian Financial Forum.

Japan announced 10.3 trillion yen ($115 billion) in fiscal stimulus last week as Prime Minister Shinzo Abe followed through on election pledges to weaken the yen, counter deflation and spur economic growth. The risk is that the nation’s debt burden, estimated by the IMF at 237 percent of gross domestic product last year, will lead to a surge in government bond yields.

The Bank of Japan (8301) meets Jan. 21 and 22 to decide whether to ease for the fourth month in five and will adopt a 2 percent inflation target advocated by Abe, according to people familiar with officials’ discussions. Central bank Governor Masaaki Shirakawa said today that the economy remains weak, with exports and production decreasing, and he plans to continue “powerful” monetary easing.

Zhu said there is “still a little room for monetary policy” in Japan against the background of the rising debt and the nation retains “room to maneuver” because of a “huge” domestic savings pool.

Japanese stocks rose today, with the Nikkei 225 Stock Average headed for its highest close since April 2010, as the yen traded near its lowest since June 2010 against the dollar. The Nikkei 225 Stock Average (NKY) gained 1.1 percent as of 9:58 a.m. in Tokyo.

Global Outlook

The global economy is “a little bit stronger” in 2013 than last year, said Zhu, who is a former deputy governor of the People’s Bank of China and a former group executive vice president at Bank of China Ltd.

China needs a consumption-driven economy for more stable growth, he said. “In the past few years, China really moved from an export-driven growth model to an investment-driven growth model,” he said. “To stabilize growth, you have to move to consumption-driven.

China’s yuan, described by the IMF last year as ‘‘moderately undervalued,’’ is moving towards fair value, the IMF official said.

In October, the IMF forecast a 1.2 percent expansion for Japan this year, along with 8.2 percent growth in China.

To contact the reporters on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Susan Li in Hong Kong at sli31@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.