WASHINGTON • In a sign of how worried it is about Japan's economy, the International Monetary Fund (IMF) is urging the country to resurrect a radical strategy once employed by former US presidents Richard Nixon, Gerald Ford and Jimmy Carter - only in reverse.

It is called an incomes policy - and it involves the kind of direct government intervention in the setting of wages that many economists now abhor.

But rather than employing it to try to contain salary and price pressures - as US leaders did in the 1970s - the IMF wants Japan to use moral suasion, tax breaks and, as a last resort, penalties to prod companies into granting bigger pay gains and thus promote higher inflation.

"We need policies to support wage increases in Japan," Mr Luc Everaert, IMF mission chief for the country, told reporters on Aug 2.

The IMF's backing of such an unorthodox approach is an acknowledgment of how entrenched Japan's "deflationary mindset" has become and how resistant it has been to a more traditional mix of policies. It is also IMF's answer to exhortations by some economists that Japan launch so-called helicopter money - direct central bank financing of the government's Budget deficit - a strategy Mr Everaert said has "very large risks".

The IMF call for more aggressive action to boost pay is being echoed in Japan. "It might be necessary to encourage a discussion throughout all ministries about a wage target policy," Cabinet minister Kozo Yamamoto told reporters in Tokyo on Aug 4. Prime Minister Shinzo Abe has not been shy about calling on companies to boost worker pay. He has also pushed through repeated increases in the minimum wage.

Yet wages have moved only stubbornly. In gross domestic product data released yesterday, total compensation for employees - including wages, bonuses and social security contributions made on their behalf - slowed to an increase of 0.3 per cent in the second quarter from 1.1 per cent in the previous three months.

BLOOMBERG