By David Lawder
WASHINGTON (Reuters) - The International Monetary Fund said on Thursday that the Bank of Japan should stay data-dependent and continue to gradually raise policy rates in line with inflation data, adding that the central bank is on track to bring price increases back to its 2% annual target.
"Our advice is that the BOJ should continue to be data-driven and to gradually raise the policy rate over its policy horizon, if the inflation forecasts bear out that this is the right way forward," IMF spokesperson Julie Kozack told a regular news briefing.
Japan's new prime minister, Shigeru Ishiba, said on Wednesday that Japan is not in an environment requiring an additional rate hike, a remark interpreted by markets as reducing the chances for a near-term increase. Ishiba has also pledged new fiscal measures to cushion many households from the impact of higher prices.
Kozack said Japan's economy was continuing to grow, but broad price increases were maintaining headline inflation above the BOJ's 2% target.
"Our assessment is that the economy does remain on track to achieving the 2% target sustainably over the medium term," Kozack said, adding that Japan's fiscal policy should be focused on "growth-friendly" fiscal consolidation to help rebuild buffers and ensure debt sustainability.
This fiscal consolidation could be underpinned by both revenue and spending measures, and would help maintain market confidence in Japan's debt sustainability, "which, of course, is essential for Japan's growth," she added.