Posted on: Saturday, August 11, 2001

Japan's economy to shrink, IMF says

Bloomberg News

Washington — Japan's economic output will contract by 0.2 percent this year, the International Monetary Fund predicted, reversing a 0.5 percent expansion forecast in April.

The downgrade for the world's second-largest economy comes because growth in the U.S. and Europe has slowed, and because Japan has made scant progress restructuring its businesses and banks to make them more efficient and competitive, the IMF said in its annual review of Japan's economy.

"Japan could re-enter a cycle of slowing activity, rising bankruptcies, and a deteriorating banking system which would, in turn, exacerbate the global downturn," the IMF said.

Japan's central bank has not done enough to ensure that price deflation, which undermines the value of corporate and individual assets, is halted, the report said.

The IMF urged the Bank of Japan to lower its current-

account surplus, projected to reach 2.4 percent of GDP this year, if necessary by pumping money into the system by buying long-term Japanese government bonds.