TOKYO, June 19 (Reuters) - The International Monetary Fund on Monday urged Japan to avoid withdrawing fiscal policy stimulus and to keep monetary policy accommodative to accelerate growth and achieve higher inflation.
The real exchange rate is in line with medium-term economic fundamentals but Japan's current account balance last year was slightly stronger than warranted by economic fundamentals, the IMF said.
"The expiration of fiscal support in 2018 under current policies together with a smaller expansion in foreign demand would reduce growth to less than half of that in 2017," the IMF said in its annual Article 4 evaluation of Japan's economy.
"Without additional spending, the fiscal stance could become contractionary in 2018–20 due also to the scheduled consumption tax hike in October 2019."
Japan also needs to move faster on reforms to increase productivity, diversify the labour market and increase corporate investment, the IMF said. (Reporting by Stanley White and Tetsushi Kajimoto; Editing by Chang-Ran Kim)