Krishna Srinivasan, director of the International Monetary Fund's Asia and Pacific Department, said Japan needs to begin reducing high levels of debt under a detailed fiscal framework as the Bank of Japan's monetary policy is normalizing.

The ruling coalition's disastrous losses in Sunday's general election has led some to believe that the administration of Prime Minister Shigeru Ishiba will expand fiscal spending and promote tax cuts to support households reeling from higher living costs.

During an interview with Jiji Press in Tokyo on Friday, however, Srinivasan highlighted the importance of embarking on "a phase of fiscal consolidation," citing the country's "very high" levels of public debt, which stand at more than 250% of its gross domestic product.

The leading IMF official called for Japan to "have a well fleshed-out, credible medium-term fiscal framework," while noting that "buffers" also need to be built "to address near-term risks and longer-term challenges."

On the BOJ's monetary policy, Srinivasan reiterated his view that the central bank should keep its focus on stabilizing inflation at its 2% target but said that any interest rate hike should be "gradual" and "data-driven." He noted that there are both "upside and downside risks of inflation."

He said that the yen's recent volatile movement against the dollar "largely reflects economic fundamentals," but added that uncertainties over the future policy path both in the United States and Japan could elevate volatility further.

As for the global economic outlook, Srinivasan stressed that downside risks are rising on the back of geoeconomic fragmentation and a slowdown in the Chinese economy, warning that an increasing number of trade restrictions could undermine economic growth in export-oriented Asia.