Japan's policy stimulus to spur growth but medium-term challenges remain: Moody's

Debt burden to rise further over the next decade.

Moody's Japan K.K. has released its latest issue of Inside Japan, which says that persistent low economic growth and inflation in Japan has prompted a shift toward greater monetary and fiscal accommodation, and led the rating agency to raise its forecasts for real GDP growth to 0.7% this year and 0.9% in 2017, following a 0.5% increase in 2015.

Moody's says the delay in the consumption tax hike and the implementation of additional fiscal stimulus, alongside the Bank of Japan's new monetary framework unveiled on 21 September, are the latest policy measures aimed at reviving economic growth and inflation, while providing room for structural reforms, such as increasing labor force participation.

Moody's however cautioned that the positive impact of these structural reforms will be set against intensifying pressures on growth and fiscal expenditure from an aging population.

"In the absence of a marked boost to growth from structural reform, we estimate that Japan's already high debt burden will further edge up over the next decade," it said.

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