IMF urges Japan to continue raising interest rates and avoid further relaxation of fiscal policy.

The International Monetary Fund has urged Japan to continue raising interest rates to avoid further easing fiscal policy and warned that cutting consumption tax would weaken its ability to deal with future economic shocks. The IMF stated that the Bank of Japan's "continued independence and credibility" would help stabilize inflation expectations and cautioned the government against excessive interference in monetary policy. In a preliminary report on Japan's policy recommendations released on Wednesday, the IMF stated: "The Bank of Japan is appropriately exiting from its accommodative monetary policy, gradual rate hikes should bring policy rates closer to neutral levels." "As the baseline forecasts continue to materialize, the exit from accommodative policies should continue, with policy rates reaching neutral levels by 2027." The IMF stated that Japan should avoid lowering consumption tax as it would "erode fiscal space and exacerbate fiscal risks." Regarding the yen's movement, the IMF welcomed Japan's commitment to a flexible exchange rate system and emphasized that exchange rate flexibility should "help cushion external shocks and support monetary policy focusing on price stability."