Kantaro Koiya, Daniel Leussink

TOKYO, Reuters – Japan should maintain its broad fiscal policy till its economic recovery is on track and not reduce its ultra-loose monetary policies too quickly, said the Organisation for Economic Cooperation and Development.

In its Japan economic survey published in April 2019, the OECD stated that although the recovery from the coronavirus epidemic was slow, growth has begun to pick up.

The OECD stated in its survey that if the Bank of Japan (BOJ’s) monetary policy was to bring inflation down to 2%, then it will likely result in higher interest rates, which would trigger fiscal consolidation.

According to the report, inflation will gradually rise as the economy emerges from the pandemic.

According to the organization, “It’s appropriate that monetary policies accommodation be not withheld prematurely.”

The OECD survey stated that fiscal policy must continue to be supportive of the economy for the short term even though public debt has risen at unprecedented rates by historical and comparable standards.

It stated that fiscal consolidation should only be resumed once recovery has been secured to guarantee long-term sustainability.

The survey revealed that interest payments for public debt were kept at a low level partly due to BOJ’s yield curve and monetary control policies. These have allowed the government to borrow while avoiding volatile or higher rates.

Japan announced a $490 billion record spending package in its attempt to accelerate economic recovery. This is against the global trend of reversing stimulus measures that were implemented during crisis mode.

The OECD’s survey found that the government has been able to maintain budget deficits despite a modest recovery due to downward pressure on interest rates.

This world’s third-largest economic country saw its annualized 3.0% decline in third quarter. It was due to lower consumption and the impact of supply shortages. But, they are forecasting to recover in the current quarter.