Press Release No. 04/35

Press Release: IMF Managing Director Horst Köhler's Statement at the Conclusion of His Visit to Japan

February 25, 2004

International Monetary Fund (IMF) Managing Director Horst Köhler made the following statement in Tokyo today:

"It is a great pleasure to return to Tokyo for the fourth time as Managing Director of the International Monetary Fund. I come away encouraged about Japan's economic prospects.

"Yesterday, I had the privilege of meeting with Prime Minister Junichiro Koizumi to hear his views about the progress in implementing economic reforms and future policy priorities. I also had fruitful meetings with Finance Minister Sadakazu Tanigaki, Bank of Japan Governor Toshihiko Fukui, Economy Minister Heizo Takenaka, other senior officials, and Chairman of the Japan Business Federation Hiroshi Okuda.

"I welcomed the latest Japanese growth figures, which surpassed everyone's expectations. While the growth partly reflects strong external demand, including from China, it is encouraging that business investment has been contributing importantly to the recovery. The likelihood now is that growth this year will be significantly stronger than previously envisaged, which would help to reduce deflationary pressures. The message from these developments is that Japan's efforts to promote economic recovery, including through structural reforms, are beginning to pay off.

"The improved economic outlook has been helped by the Bank of Japan's quantitative easing policy, and I support the central bank's increasingly proactive approach. In addition, good progress has been made in corporate and financial sector restructuring, as reflected in improved profitability in the corporate sector and a steady decline in the banking system's non-performing loans under the Program for Financial Revival. The government has also managed to continue to reduce the high level of public works spending.

"Looking ahead, although difficult challenges remain, I agree fully with Prime Minister Koizumi and senior officials that the current recovery in activity both here and abroad is a golden opportunity to press ahead with the reforms that will sustain growth. This will involve continued efforts to bring deflation, which remains a concern, to an end. At the same time, the authorities are firmly committed to tackling remaining financial and corporate sector weaknesses. With the major banks having made significant headway in improving their balance sheets, we look forward to a more broad-based strengthening of the banking system. We also hope the success that many companies have achieved in strengthening their financial health can become increasingly widespread in the corporate sector.

"Also essential for sustained growth over the medium term is a reduction in the large fiscal deficit. I welcome the authorities' goal of achieving a primary surplus by the early 2010s. With the economy now recovering, the time is right to embark on this process. Putting the public finances on a sound footing will also require decisive action to reform the public pension system.

"Japan's economic prospects have clearly brightened. I am confident that continued efforts to carry out structural reforms will lead to sustained growth over the coming years. This will help to sustain global recovery and contribute to the smooth resolution of global imbalances. In this context, I also encouraged the authorities to play a leadership role in moving forward the Doha Round of trade negotiations."