OECD backs Japan deflation fight, but says must cut debt

The Organisation for Economic Co-operation and Development on Tuesday backed Japan's bid to end years of deflation, but called on Tokyo to step up efforts to shrink its huge debt pile.

In an annual country report, the 34-member OECD described the new government's bid to reverse falling prices with huge stimulus measures as "most encouraging".

But critics say the policies of Prime Minister Shinzo Abe and his hand-picked Bank of Japan team could inflate Japan's massive public debt, which at more than twice the size of the economy is the worst in the industrialised world.

"Ending 15 years of deflation is a priority," the report said, adding that "the new government's resolve to revitalise the economy through a three-pronged strategy combining bold monetary policy, flexible fiscal policy and a growth strategy, is most encouraging".

But "stopping and reversing the rise in the debt-to-GDP ratio is crucial", it added.