An increase in Japanese foreign direct investment and bank lending to Asia has helped counteract capital outflows triggered by expectations that the U.S. Federal Reserve will soon taper its asset-buying program, the International Monetary Fund's top official for Asia said on Tuesday.
The first phase of "Abenomics" has gone well but the challenge will be to make a successful transition to a self-sustained, private-demand led economic growth, IMF Asia-Pacific Department Director Anoop Singh said in a seminar in Tokyo on Prime Minister Shinzo Abe's stimulus policies, dubbed "Abenomics."
"Over the medium term, Japan will need to achieve higher growth, which is essential to ensure fiscal sustainability and lower public debt," Singh said.
On the Bank of Japan's monetary easing efforts to achieve 2 percent inflation in roughly two years, Singh said the central bank needs to continue to sail in "uncharted waters" but at the same time start to "plan early to address exit risks."
A nominal wage increase is essential to exit deflation, he added, warning that structural reforms to raise supply, while necessary to complement monetary and fiscal policies to increase medium-term growth, could increase short term deflationary pressures.