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IMF head praises Japan's attempts to revive economy

The head of the International Monetary Fund (IMF) said yesterday he expected the Japanese economy to grow at least 3 percent this year while endorsing the country's recent massive forex market intervention to stabilize the financial system and fight deflation.

"In our view the number goes more to 3 percent, possibly even beyond that," IMF managing director Horst Koehler told reporters on a two-day visit to Japan.

The fund's new projection was revised up from an estimate late last year that the world's second largest economy would grow 2.2 percent this year.

Last week Japan said the economy grew 1.7 percent in three months to December for an annualized rate of 7 percent, the fastest rate in 13 years, boosted by robust exports as well as recovering investment in factories and offices.

"While the growth partly reflects strong external demand, including from China, it is encouraging that business sentiment has been contributing importantly to the recovery," Koehler said in a speech.

"The message from these developments is that Japan's efforts to promote economic recovery, including through structural reforms, are beginning to pay off," he said, adding the global upturn would help Tokyo press ahead with reforms that should lead to sustainable growth.

"With the major banks having made significant headway in improving their balance sheets, we look forward to a more broad-based strengthening of the banking system," he said.

The Bank of Japan's policies have contributed to the improved economic outlook, Koehler said.

The central bank has been tackling deflation by offering commercial banks massive amounts of funds as there is little room for cutting Japan's interest rates, which are about zero percent for overnight lending.

Asked about Japan's massive foreign exchange market intervention to sell the yen in the past year, Koehler said it was a pragmatic policy which should help stabilize the country's financial system and fight persistent deflation.

"I do think that it was an appropriate policy stance," he said, adding, however, that he believed it should be a temporary action and not targeted at specific exchange rates.

Japan spent ?7.15 trillion (US$67 billion) in January alone in market intervention, according to the finance ministry.

Last year, Japanese monetary authorities used a record ?20.06 trillion in an effort to stem the yen's rise against the dollar, far exceeding the previous record of ?7.64 trillion in 1999.

Koehler said that in the circumstances of super-low interest rates, Tokyo had few options.
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