The International Monetary Fund on Monday urged Japan's government to overhaul its stimulus policies by moving income policies and labor market reform to the forefront, supported by more monetary and fiscal stimulus.
"Under current policies, the high nominal growth goal, the inflation target, and the primary budget surplus objective all remain out of reach within the timeframe set by the authorities," the IMF said in a statement after "Article 4" annual consultations on economic policy with Japan.
The global lender called for a more flexible monetary policy framework with the Bank of Japan abandoning a specific calendar date for achieving its 2 percent inflation target. It added that Japan would need to raise the sales tax to at least 15 percent to strike the right balance between growth and fiscal sustainability.
"Without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish, and any further monetary easing could lead to overreliance on depreciation of the yen," the IMF said.