IMF: Signs of stabilization in Japan though outlook remains uncertain

The IMF has released its semi-annual report on Japan, and as my British colleagues say, it makes for grim reading.

• The Fund sees signs of stabilization but still expects the economy to contract 6.0% this year while growing 1.75% next year.
• Inflation is projected to stay negative through 2011.
• Additional credit easing may be needed should downside risks materialize
• The current value of the JPY is consistent with medium-term fundamentals
• A rebound in risk appetite could reignite carry trades

On balance, the comments look JPY negative (more QE, deflation, carry trades), but Japanese fundamentals are not a big part of the equation at the moment.