IMF top economist sees Japan’s monetary easing as appropriate

The International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, stated in an interview on Tuesday that the Bank of Japan’s accommodating monetary policy stance “looks pretty appropriate.”

Given the absence of inflationary pressures, “we don’t see signs that monetary policy needs to be contractionary in Japan,” Gourinchas said. According to him, Japan’s economic activity “can be sustained” by monetary easing.

He said Japan’s inflation is estimated at 1.9% in 2022 and 1.3% in 2023, below the central bank’s target of 2.0%.

Gourinchas brushed down worries that a lower yen resulting from Japan’s low-interest rates will hurt the country’s economy by driving up import prices.

International Monetary Fund (IMF) Chief Economist Pierre Olivier Gourinchas speaks during an interview with AFP at the IMF headquarters in Washington, DC, on July 26, 2022. – Surging inflation and severe slowdowns in the United States and China prompted the IMF on July 26, 2022, to downgrade its outlook for the global economy this year and next, while giving an even starker assessment of what may lie ahead. (Photo by OLIVIER DOULIERY / AFP)

According to him, the yen’s decline “will promote Japanese growth” since it “raises the competitiveness of Japanese goods globally.”

One of the issues with the Japanese economy, according to Gourinchas, is that its potential long-term growth rate is only about 0.4 percent.

He suggested that among other things, Japan should encourage digitalization and a transition to a “green” economy to spur long-term growth.

Increasing interest rates by several central banks, according to Gourinchas, present “the likelihood that inflation could be coming down considerably faster than anticipated,” in response to rising price pressures around the world.

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