IMF urges Japan to persist with rate hikes and resist tax cuts

The IMF told Japan to keep raising interest rates toward a neutral stance and refrain from further fiscal loosening, warning that trimming the 8% consumption tax on food would erode fiscal space and heighten risk from shocks. With inflation above target, the BOJ is gradually winding down stimulus and is expected to reach a neutral policy by 2027, while Japan must maintain a credible medium-term fiscal framework amid high debt and rising interest costs; any tax relief should be limited and temporary, and liquidity should be safeguarded with possible exceptional interventions, supported by a flexible exchange rate to absorb external shocks.