IMF Gives Thumbs Up to BOJ’s Shift, Suggests More Communication

  • New framework counters perceptions BOJ easing faces limits
  • Monetary, fiscal and reforms all needed to boost economy

The Bank of Japan’s new policy framework has made its monetary easing more sustainable and effective, according to the International Monetary Fund, which also suggested the BOJ further enhance its communications.

“The change in the framework has made it clear that there are still tools available that allow monetary policy to be as accommodative as possible for the future and raise inflation expectations,” Luc Everaert, the fund’s mission chief for Japan, said in an interview in Tokyo on Monday. “We support it and we also find that the framework allows monetary easing to be more sustainable and more effective. New measures allow more flexibility and they can be kept in place for a longer time.”

The central bank has been improving its communication but could still do more, said Everaert, 55. Before the policy change on Sept. 21, Governor Haruhiko Kuroda and other officials provided deeper insight on their thinking through speeches and media appearances than they did previously.

“There is still scope to improve the clarity of the framework and improve the clarity of communication, for example, by publishing a staff forecast of how they see inflation evolving and when it will reach the target," Everaert said, who cited the Federal Reserve’s "dot plot" as one model. He also suggested the BOJ discuss how it would react in cases of adverse shocks.

Still, monetary easing alone won’t solve the fundamental problems facing the Japanese economy, he said, citing the importance of the government’s fiscal measures and structural reforms. The IMF recommends Japan use moral suasion, tax breaks and, as a last resort, penalties to prod companies into granting bigger pay gains and promote higher inflation.

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