Japan has finally emerged from the ”lost decade” of deflation and is set to continue on a path of robust growth, weathering an expected end to zero interest rates, the International Monetary Fund (IMF) said on Wednesday.
”Japan has now exited from the period of deflation. The problems from the lost decade basically appear to be behind us,” said Daniel Citrin, deputy director of the IMF’s Asia and Pacific department.
That contrasts with the official view of Japan’s government that the world’s second-largest economy remains beset by mild deflation.
”The risk of slipping back into deflation is pretty small, barring some unforeseen shock,” he told a briefing on the results of the IMF’s annual review of the Japanese economy.
The IMF also trimmed slightly its growth forecasts slightly to reflect the slowdown seen in the first quarter of 2006 and revisions to data for last year.
It now sees economic growth of about 2,75% in 2006, down from 2,8% previously, slowing to 2% in 2007 instead of 2,1%.
”Generally speaking we see the growth picture remaining robust, notwithstanding certain risks that relate mainly to the external environment,” such as volatile oil prices and rising world interest rates, Citrin said.
The IMF said the Bank of Japan should maintain its zero-interest-rate policy ”in the near future” as inflation remains very low, but Citrin added that he saw little risk of the central bank snuffing out the economic recovery.
Financial markets expect the central bank to soon end the era of near-zero interest rates, possibly as early as July, after it scrapped its five-year ultra-loose monetary policy in March.
Japan saw a further easing of deflationary pressures in March when core consumer prices rose for a fifth straight month. — Sapa-AFP