The International Monetary Fund (IMF) urged the Japanese government on Wednesday to continue its policy of curtailing Japan's ballooning debt by finally imposing the controversial consumption tax hike as it stressed that fiscal reforms policy should ideally commence next year with the sales levy setting its footprint on the economy in a gradual pace.

The IMF also emphasised that such measures must be supported by deliberate efforts to reduce the structural primary deficit over the next decade as the institution reacted to Tokyo's apparent backpedalling on its fiscal reforms commitments in view of the electoral rout suffered last Sunday by Prime Minister Naoto Kan's party, the Democratic Party of Japan.

Prevalent public sentiments published by local newspapers showed that most Japanese gravitate towards a debate on raising the sales tax to buttress the country's public coffers, possibly replenishing the national treasury in order to address a public debt that has reached a point twice the size of the economy.

In its annual report and following careful consultations with Tokyo, the IMF said that the spillover effect of the European debt crisis further heightened the uncertainty and downside risks on Japan's economic outlook, consequently underscoring the attention begged for by the country's massive debt woes.

The IMF said that dealing with Japan's public debt, which is one the world's most advanced economies, would constitute "a large and protracted adjustment that will be made more credible by an early increase in the consumption tax."

It added that Tokyo would be served well once it gets around on effecting "a fiscal rule featuring a public debt cap and a primary surplus target," which should lead to a more solid credibility for its financial policy and secured fiscal advancements.