The head of the International Monetary Fund says Japan should be more ambitious in its economic reform efforts, saying the country still faces significant challenges.  

IMF Managing Director Rodrigo de Rato called on Japan not to reverse course in its program of economic reforms.

Japanese Prime Minister Junichiro Koizumi is credited, during five years in office, with implementing a program of structural reforms that have helped Japan recover financial health.  The reforms followed a long period of deflation, anemic growth and deficits.

But some conservative politicians here say the program went too far, too fast - for example, by destroying the corporate lifetime employment system and causing other social stresses.

But de Rato says more needs to be done.  He is encouraging Japan to bring more women and disaffected youth into the labor market, as well as opening the country further to domestic and international competition.

He also suggests that Japan might have to raise its five percent consumption tax to cope with the economic challenges it faces - including what he termed an uncomfortably high level of public debt combined with an aging society.

"We believe that there is a case for somewhat more ambitious and front-loaded adjustment to take advantage of the recent upswing, to set the debt ratio in a declining path, and to allow more room for maneuver in the future," de Rato said.

The International Monetary Fund late last month declared that deflation in Japan had ended.  De Rato lavished praise on the Bank of Japan for its management of the economy, and said the International Monetary Fund does not see inflationary pressures in the country.   Japan's central bank in July raised interest rates, which had been set at virtually zero, for the first time in more than five years. 

The IMF mandate is to foster economic growth through monetary cooperation, and to provide temporary assistance to countries that find themselves in economic crisis.  Japan is the second largest of the IMF's 184 member economies.