Japan is making progress towards achieving the Bank of Japan's 2% inflation target in a sustainable manner, as indicated by strong consumer spending and expected capital investment to support the economy, according to the International Monetary Fund. The IMF stated that Japan's economy could potentially reach a new equilibrium with inflation consistently at 2% and economic growth around 0.5%. While risks to economic growth are primarily on the downside, risks to inflation are seen to be mostly balanced. Factors such as a global economic slowdown and weakened domestic consumption present challenges to growth. The IMF did not address the potential impact of the 24% U.S. import tariffs on Japan. Despite February's headline inflation of 3.7%, which exceeded the BOJ's target for nearly three years, Japan faces challenges such as high food costs affecting households. The IMF believes that although inflation risks exist due to increasing food and energy prices, these may diminish over time, aligning inflation more closely with the BOJ's target. The IMF's executive directors advised the BOJ to gradually reduce monetary stimulus in line with the IMF staff projections for Japan's economy. The prediction includes a 1.2% growth in 2025 and a slowdown in inflation to 2.4% that year. Following the BOJ's exit from a lengthy stimulus program and the increase of interest rates to 0.5% in January, Governor Kazuo Ueda indicated that further rises in borrowing costs could follow as long as wage growth supports consumer spending and allows companies to adjust prices.