IMF welcomes new Japan premier's stimulus plan, focus on income gap

FILE PHOTO: Japanese Prime Minister Fumio Kishida speaks during a news conference at the prime minister's official residence in Tokyo, Japan October 14, 2021. Eugene Hoshiko/Pool via REUTERS/File Photo

By Leika Kihara

TOKYO (Reuters) - The International Monetary Fund welcomes the plan by Japan's new prime minister to deploy a fresh stimulus package as well as his focus on tackling inequality as necessary to mitigate the economic impact from the coronavirus pandemic.

Prime Minister Fumio Kishida's plan to compile a stimulus package by the year-end is "appropriate", Odd Per Brekk, deputy director of the IMF's Asia and Pacific Department, told Reuters in a written interview on Tuesday.

"Until the recovery is firmly underway, fiscal support for health systems and affected workers and firms should be continued," he said.

He added that labour market reform and structural policies would help narrow Japan's wealth gap.

The IMF cut this year's economic growth forecast for Japan to 2.4% from a July estimate of 2.8%, mainly due to a spike in Delta variant cases that hit consumer spending. But it expects growth to accelerate to 3.2% next year, as the lifting of state of emergency curbs on Sept. 30 props up domestic demand.

"With more than two thirds of the population vaccinated, Japan is expected to have a strong economic recovery in the coming months driven by pent-up demand," Brekk said.

Supply chain disruptions have slowed Japanese manufacturing activity and could persist into next year.

But consumers will likely shift their purchases from goods to services as the economy re-opens, helping limit the effect of supply chain disruptions on overall growth, he said.

Japan's economy has emerged from last year's pandemic-induced doldrums as robust overseas demand offset some of the weakness in consumer spending. But analysts expect any rebound in July-September growth to be modest as exports and output took a hit from parts shortages and factory shutdowns in Asia caused by the pandemic.

The IMF released its latest economic growth forecasts during joint IMF and World Bank annual meetings held from Oct. 11.

(Reporting by Leika Kihara; Editing by Edwina Gibbs)

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