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Japan exhausted growth options, needs structural reforms: OECD

OECD: We're worried about EMs this year

Japan has exhausted all options to stimulate growth and needs structural reforms, a senior official at the Organisation for Economic Co-operation and Development said Friday.

The comments from Randall Jones, the head of Japan and Korea at OECD, come after the Bank of Japan's move on January 29 to adopt a negative interest rate policy for the first time ever in order to stimulate the economy as volatile markets threatened the central bank's efforts to overcome deflation.

The move, which follows in the footsteps of some European central banks, has triggered a debate on the likely impact on deposit rates as well the effect on pension returns amid a plunge in bond yields. Doubts also remain in general on the efficacy of charging banks for placing cash with the central bank.

The OECD is forecasting Japan's real GDP growth at 0.8 percent this year, down 0.2 percentage point from its forecast in November but double that for the 0.4 percent growth the country is estimated to have achieved in 2015.

Since taking office in 2012, Japan prime minster Shinzo Abe has advocated policies based on the "three arrows" of fiscal stimulus, monetary easing and structural reforms—also known as Abenomics.

‘Urgent’ action needed to kickstart slow growth: OECD

Despite the hype, results have been patchy with the economy contracting 1.4 percent in the last quarter of 2015.

"For Japan, the key thing really is the third arrow. We see some structural reforms that are very positive (such as) the TPP (Trans-Pacific Partnership) and the efforts on corporate governance, trying to more promote more focus profitability and risk-taking so we see some reforms that are very much in the right direction but they take time to bear fruit," Jones told Squawk Box.

Structural reforms will also help the fiscal situation, he said.

Japan's efforts to grow its economy after years of stagnation come amid a somber global backdrop.

The OECD said in its interim economic outlook released Thursday that a pick-up in global GDP growth remains elusive amid financial markets instability. It expects global economy to expand just 3 percent this year, the same pace as last year.

Citing financial risk as key, the OECD is worried the "turbulence we are seeing could feed into the real markets" globally.

"Global growth prospects have practically flat-lined, recent data have disappointed and indicators point to slower growth in major economies, despite the boost from low oil prices and low interest rates," OECD Chief Economist Catherine Mann said in a report published on Thursday.

Like Japan, Korea needs to move ahead with structural reform, which it is spearheading with ambitious plans to create a new creative economy that doesn't rely on chaebol (conglomerates) and manufacturing exports.

"(These are) structural changes going from a model that has been very successful for 30, 40 years (that) is facing challenges with the rise of China and competition in the export market," said Jones.

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