The International Monetary Fund says Japan's policy challenge in the near term is to ensure that the 2 percent inflation target is reached durably.

The IMF announced the outcome of its review of Japan's economy at a news conference in Tokyo on Thursday.

The financial body said the economic recovery in Japan is projected to continue in the near term due to pent-up demand following the relaxing of coronavirus-related restrictions, and the government's support policy.

The IMF said the Bank of Japan's accommodative monetary policy stance remains appropriate. But it said this "needs to be supported by other policies to achieve the 2 percent inflation target sustainably, including policies to improve productivity and real wages".

The IMF said more flexibility in long-term yields would help better manage inflation risks and other side-effects of easing.

The body also said that over the medium term, fiscal consolidation must be growth-friendly and credible to put public debt on a downward path and to rebuild fiscal buffers.

It said the priority is to reduce fiscal vulnerabilities and transition to a more dynamic, resilient, and inclusive economy.

First Deputy Managing Director Gita Gopinath said IMF officials discussed a policy mix with the Japanese government to ensure that the inflation target can be achieved sustainably.

Gopinath noted that there is very significant uncertainty regarding the inflation outlook for Japan with both upside and downside risks, and eyes should be kept on developments.