The International Monetary Fund has recommended Japan reform its labor market and gradually raise its consumption tax to at least 15%.

    In an annual report, the IMF forecasts that Japan's economy will grow about 0.5% this year. It says consumption and investment will remain stagnant and the higher yen as well as a drop in share prices are preventing an economic recovery. It predicts Japan's economic growth will fall to 0.3% next year without new economic policies.

    The IMF says it will be difficult for Japan to achieve high growth and fiscal consolidation with its current policies. It notes Japan's government should urge firms to increase wages and pursue reforms in the labor market, according to Japan's (NHK WORLD) radio.

    The report says that without bolder structural reforms and credible fiscal consolidation, domestic demand could remain sluggish. It adds any further monetary easing could lead to an overreliance on depreciation of the yen.

    The IMF suggests Japan raise the consumption tax from the current 8% to 15% gradually with increases of 0.5 to 1% annually. It welcomed negative interest rates introduced by the Bank of Japan, but suggested that monetary policy alone will not deliver desired outcome.