IMF sees Japan economy stabilising

The IMF maintained its forecast for a record 6.0 percent contraction in Japan's economy this year and said there are some signs of stabilisation.

In its annual assessment of Japan's economy, the IMF said a sustained recovery was likely during the course of 2010, but warned the outlook was uncertain and depended on improvements in global financial conditions and trade.

The IMF said deflation in Japan would remain until 2011. In May, the fund said Japan's economy was likely to contract by 6.2 percent, but then revised it up slightly to 6 in its World Economic Outlook released last week.

"Policy stimulus will provide a much-needed boost to the economy but a sustained recovery will ultimately depend on an upturn overseas," IMF staff said in a report.

Meanwhile, the IMF commended the authorities for a "well-calibrated" response to the recession through stimulus spending. It said current stimulus appeared to be adequate although additional measures may be needed next year if the recession persists.

It said net public debt could rise to about 140 percent of gross domestic product, or 240 percent in gross terms, by 2014.

Turning to monetary policy, the IMF said further credit easing may be necessary should risks materialize or financial pressures resurface. For now, monetary policy is "appropriately accommodative" in the wake of a significant widening of the output gap and downward pressures on prices, the fund added.

The IMF said its analysis showed the current value of the yen was "consistent with medium-term fundamentals."

- Reuters