IMF says Japan's economy showing resilience

TOKYO: The Japanese economy is holding up well in the face of the US economic slowdown but interest rates still need to be kept low until uncertainty over the outlook clears, the IMF said Thursday.

The International Monetary Fund urged Asia's largest economy to make efforts to reduce its huge public debts and take measures to address the demands from its ageing population.

"We see the economy as showing a welcome resilience to the slowdown in the US and global markets so far," Daniel Citrin, deputy director of the IMF's Asia and Pacific Department, told reporters.

He noted that the world's second-biggest economy posted annualised growth of 3.3 per cent in the first quarter of 2008, based on a preliminary estimate. "That said, recent indicators do suggest that we are heading for a slowdown. The momentum is set to slow with lower global growth, a fairly stagnant US economy in particular, and also deteriorating terms of trade reflecting the sharp increase in global energy and commodity prices.

"This is putting a squeeze on both profits in the business sector and household income," Citrin said after annual consultations between the IMF and Japanese government and other officials.

He said the IMF expects Japan's economy to grow by about 1.4 per cent this year and 1.5 per cent in 2009, in line with its earlier forecasts.

"The outlook is subject to considerable uncertainty at this time, related to the depth of the US slowdown and also future developments in commodity prices and financial market conditions," he said.

While consumer price inflation is picking up due to rising energy and commodity prices, underlying inflation should remain subdued, the IMF said. "Monetary policy is now on hold until the concerns on the outlook ease. We believe that it is appropriate," Citrin said.

Japan's interest rates, which have been held at 0.5 percent for more than a year, are by far the lowest among the major economies, a legacy of the central bank's efforts to reverse a long period of sluggish growth and deflation.

The IMF reiterated its call on the Japanese government to tackle the massive national debt - the biggest among industrialised nations.

"In fiscal policy we continue to believe that it should be guided by the need to reduce the very high public debt and to address the demands from an ageing population that are increasing year by year," Citrin said.