MNI BRIEF: Japan's Deficit At Risk Of Rising - IMF
MNI (TOKYO) - The International Monetary Fund’s 2025 Article IV Mission has warned Japan that its deficit could widen further and the government should formulate a clear consolidaton plan to ensure debt sustainability and increase fiscal space needed to respond to shocks, such as natural disasters.
“This will require elaborating concrete and credible expenditure and revenue measures in the context of a robust medium-term fiscal framework,” the IMF said, noting the political demands of a minority government risked increasing the deficit further.
"This should be avoided as fiscal space remains limited: any expansionary measure should be offset by higher revenues or expenditure savings elsewhere in the budget.”
The IMF also said that as interest rates rise, the cost of servicing the large public debt is expected to double by 2030, putting a premium on a robust debt management strategy.
The IMF said the Bank of Japan's accommodative monetary policy stance is appropriate "and will ensure inflation expectations rise sustainably to the 2% inflation target.”
“Accommodation should continue to be withdrawn gradually if the baseline forecast bears out, under which we expect the policy rate would reach a neutral level by end-2027,” the IMF said.