International Monetary Fund Paper Advises Japan on Deflation

Almost four years ago, Japanese Prime Minister Shinzo Abe initiated an unprecedented program of fiscal stimulus, monetary easing and structural reforms to inflate Japan's economy.

Known as "Abenomics," this major initiative has not lived up to expectations.

Japan's economy remains weak as consumer prices slide. Wage growth is also a problem.

The International Monetary Fund offers ideas that it believes will help Japan. Read this excerpt from a Sept. 6 Japan Today article:

Japan should set a wage inflation goal of around 3% to try to end low wage growth and induce prices to rise in line with the central bank’s inflation target, International Monetary Fund (IMF) staff said in a paper released on Sept. 6. The working paper also called for the Bank of Japan to adopt an inflation-forecast-targeting framework, in which monetary policy responds to deviations of the inflation forecast from the 2% target. The recommendations were made by several authors as part of their proposed policy package to reinforce the Abenomics three-pronged policies - a reflationary recipe Prime Minister Shinzo Abe adopted after sweeping to power in December 2012. The IMF said working papers by its staff are done to encourage debate and do not necessarily represent its official views. … The working paper suggested that the “new arrow” of a proposed policy package be “an incomes policy for Japan to put an end to low wage growth and induce inflation” through cost-push pressures. Under the new incomes policy, the government would announce a wage inflation guideline, which companies would then need to comply with, or explain publicly why they cannot, it added. It also noted that the BOJ forecast of inflation would become an ideal intermediate target for monetary policy, helping the central bank build up credibility with financial markets and better anchor long-term inflation expectations to its 2% target.

You can read the entire article by following the link below:

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