The International Monetary Fund (IMF) has urged the Central Bank of Japan (BOJ) to prepare an ‘emergency plan’ following the serious threat of the Ukraine crisis on Japanese trade and commodity prices.
According to a report released on Thursday, the IMF says the BOJ must maintain a very loose policy for an extended period to achieve its 2% inflation target continuously even as rising commodity costs could boost inflation.
The IMF added that the escalation of the Ukraine conflict posed a significant downside risk to the Japanese economy by saying there was potential for trade to be affected and rising commodity prices could dampen domestic demand.
In the wake of the high uncertainty caused by the Covid-19 outbreak and the conflict in Ukraine, the authorities should consider preparing an easy-to-implement contingency plan in the event of a severe economic shock.
In addition, the IMF also reduced its forecast for Japan's economic growth to 2.4% this year, lower than the forecast for 3.3% expansion made in January.
Domestic demand is likely to slow from the surge in commodity prices, while geo-political tensions and a sharper-than-expected slowdown in China’s growth are risks to exports, according to the IMF.
