Economic outlook, analysis and forecasts
Japan - Economic forecast summary (June 2015)
The economy has now rebounded from the contraction in the wake of the 2014 tax hike. Supported by the fall in oil prices and real wage gains, output growth is projected to reach ¾ per cent in 2015 and 1½ per cent in 2016. Export growth is projected to remain buoyant, reflecting the weaker yen and a gradual pick-up in world trade. Inflation, which has fallen close to zero, is projected to begin rising in the second half of 2015, reaching 1½ per cent by the end of 2016, while the unemployment rate continues to fall.
The Bank of Japan's “quantitative and qualitative monetary easing” should continue until the 2% inflation target has been sustainably achieved. The reduction of public debt remains a top priority as gross public debt reaches 230% of GDP. To achieve fiscal sustainability, a detailed and credible fiscal consolidation plan to attain the target of a primary budget surplus by FY 2020 is required, as well as faster output growth through bold structural reforms, including those in Japan’s growth strategy, which is aimed at boosting private-sector investment.
Business investment is a key to raising labour productivity, which is a quarter below the average of the top half of OECD countries. The planned cuts in Japan’s relatively high corporate income tax rate are expected to spur investment, but other measures are needed. Further improving the corporate governance framework and accelerating product market reforms to create new business opportunities would encourage firms to invest their large cash holdings. Raising Japan’s relatively low rate of firm creation, in part by promoting venture capital investment, is another priority.