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IMF trims Japan GDP outlook, says may need more easing to hit CPI goal

TOKYO, Oct 9 (Reuters) - The Bank of Japan's monetary easinglast month should support economic growth and help enddeflation, but more easing may be needed to hit the bank's 1percent inflation target, the International Monetary Fund saidon Tuesday.

In its semi-annual World Economic Outlook, the IMF alsotrimmed its growth forecasts for the world's third-largesteconomy citing factors affecting Asian economies in general --weaker demand for exports and a slowdown in China.

Compared with its July forecast update, the IMF cut thisyear's growth estimate for Japan to about 2.2 percent from 2.4percent and next year's to 1.2 percent from 1.5 percent.

Relatively robust growth this year followed by a slowdown in2013 reflected the temporary effect of rebuilding from the March2011 earthquake and tsunami and a manufacturing rebound fromThai floods late last year, the IMF said.

"The easing of monetary policy announced in September shouldhelp support economic growth and exit from deflation," the Fundsaid in its report. "Further easing of monetary policy may,however, be needed for inflation accelerating toward the Bank ofJapan's goal of 1 percent."

The BOJ set the inflation target in February to assuremarkets of its determination to end deflation that has weighedon consumption and business investment for a decade. It followedthrough by boosting purchases of government bonds and otherassets -- its main policy tool -- three times this year. Thelast easing was announced in September.

The central bank paused at its meeting last week, but leftthe door open to more stimulus, possibly as soon as on Oct. 30when its policy board meets again and is expected to admit thatit remains far from reaching its inflation target.

The IMF forecast that while consumer prices would stabilisethis year after a 0.3 percent drop in 2011, mild deflation wouldresume in 2013 with a 0.2 percent decline.

The Fund also praised the recent approval of a gradualdoubling of the consumption tax rate to 10 percent by 2015 as animportant step, but reiterated that further consolidation wasneeded to bring Japan's public debt back on a sustainable path.

(Reporting by Tomasz Janowski; Editing by Neil Fullick)

((tomasz.janowski@thomsonreuters.com)(+81 3 6441 1681)(ReutersMessaging: tomasz.janowski.reuters.com@reuters.net))

Keywords: IMF JAPAN/

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