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Economy

IMF urges graying Japan to raise consumption tax to 15%

Fund calls for inflation target flexibility as chief backs Tokyo's stimulus

As Japan's social security obligations grow, the IMF sees the need for further increases in the consumption tax.   © Reuters

TOKYO -- Japan needs to raise its consumption tax further to fund growing social security costs, the International Monetary Fund recommended Monday, as its chief endorsed stimulus steps the country is weighing amid the global economic slowdown.

The tax "would need to increase gradually" to 15% by 2030 and 20% by 2050, the IMF said in a report. It offered a more specific timeline than a 2018 report that called for a gradual increase to 15%.

In a news conference, IMF Managing Director Kristalina Georgieva praised the smooth implementation of the Oct. 1 hike that took the consumption tax to 10% from 8%.

"Extending the temporary measures to cushion the impact of the consumption tax rate increase should be considered," the report said. These steps include a rewards program for cashless payments. But the fund cautioned against overrelying on supplementary budgets, recommending that the government limit their "frequency and size."

Prime Minister Shinzo Abe's government is right to consider stimulus measures partly funded by supplemental budgets, Georgieva told Nikkei and other media organizations Monday.

The IMF sees Japan's gross domestic product logging 0.8% growth in real terms in 2019 and 0.5% in 2020. But it projects the U.S.-China trade war to shave 0.8% off global GDP. Georgieva encouraged fiscal measures by countries that can afford them.

She pointed out that wages are not rising in Japan despite the country's low unemployment rate. Structural reform is needed to effectively tap the ample cash that corporations have on hand, Georgieva said.

For its yield curve controls that guide long- and short-term interest rates, the BOJ could "mitigate the impact of its prolonged accommodative monetary policy stance on financial institutions' profitability" by shifting the target of zero percent for 10-year Japanese government bond yields to "a shorter maturity," the IMF said in the report.

It also called on the central bank to rethink its inflation target of 2%. The central bank "could consider increasing policy flexibility by introducing an inflation range target," the report said.

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