The International Monetary Fund (IMF) on Wednesday warned of increased risks to the global financial system, urging policymakers to restore confidence, reverse capital flight, and reintegrate the euro zone. Despite recent favorable developments in financial markets, risks to financial stability have increased in the past six months, as confidence in the global financial system has become very fragile,\" the IMF said in its Global Financial Stability Report released here. \"Although significant new efforts by European policymakers have allayed investors\' biggest fears, the euro area crisis remains the principal source of concern,\" the semi-annual report said. The European Central Bank\'s (ECB\'s) exceptional liquidity operations around the beginning of 2012 eased the pressure on banks to shed assets, but that pressure rose again, the fund said. \"The statement by the president of the ECB in July, and measures proposed by the ECB in September to increase liquidity support and safeguard an appropriate monetary policy transmission, have been essential in addressing investors\' biggest fears and prompted another market recovery,\" it said. The IMF also urged Japan and the US to take measures toward medium-term fiscal adjustment without further delay. Japan has been a beneficiary of safe-haven inflows as a result of the crisis in Europe, but such flows have also driven the yen exchange rate to near historic highs, impacting Japanese exports and domestic production, it said. For the US, safe-haven flows, central bank purchases, and balance sheet de-risking have also contributed to an unprecedented compression of credit risk premiums and yields. The looming debt ceiling, fiscal cliff, and related uncertainty are the main immediate risks, while unsustainable debt dynamics remain the key medium-term concern.