IMF welcomes Japan's tax hike plan, urges U.S. to avoid default

The International Monetary Fund welcomed Japan's plan Thursday to raise the sales tax rate next year to tackle its snowballing debt and urged the United States to avoid a default by raising its debt ceiling soon.

IMF chief Christine Lagarde said the initial consumption tax increase is "welcome," in reference to the recent announcement by Japanese Prime Minister Shinzo Abe to hike the rate to 8 percent in April from the 5 percent. "It's one step. It has to go further," she said.

Abe also said the Japanese government will consider raising the sales tax rate to 10 percent in October 2015 in line with a law cleared by parliament, if the economic situation permits.

Lagarde urged Japan to bring down its debt, which is growing along with rising social security costs. She noted its amount is approaching 250 percent of the gross domestic product of the world's third largest economy and amounts to about $90,000 for every person in Japan.

The IMF managing director also urged the United States to resume its full federal government services early and raise the maximum cap of debt issuance by mid-October in order to prevent the U.S. government from facing a debt default.

"The government shutdown is bad enough but failure to raise the debt ceiling would be far worse," Lagarde said.

The possible U.S. default "could very seriously damage not only the U.S. economy but also the entire global economy," she said.

"I personally have huge trust in policymakers and I hope very strongly that they will find a way to resolve this issue," she said.

Lagarde also said she expected the U.S. Federal Reserve to scale down its quantitative easing program by purchasing a massive amount of assets "very soon."

She repeated a call on the U.S. central bank to curb the impact of the decision to taper easing on the global market, in particular emerging economies.

It has to be done "gradually" and through "good communication," she said, referring the need by the Fed to disclose information early enough.