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Economic growth is projected to edge up to 1.4% in 2017, aided by stronger international trade in Asia and fiscal stimulus. Although fiscal support is expected to fade in 2018, labour and capacity shortages and record-high corporate profits will support employment and business investment, keeping growth close to 1%. Headline inflation will reach 1% by end-2017, due to ongoing monetary easing.
The primary deficit in 2018 is projected to remain well above the government's benchmark of 1% of GDP, leading to a further rise in the ratio of government debt to GDP. To sustain confidence in Japan’s public finances, setting out and implementing a more detailed consolidation path, including gradual increases in the consumption tax rate, is a priority. Continued structural reforms to boost productivity and employment, especially of women, are important to support inclusive growth. Faster growth is essential to stopping and reversing the run-up in the public debt ratio.
Japan has become increasingly integrated in global value chains, especially in Asia. The benefits of international trade are concentrated in large firms, as few small and medium-sized enterprises export, thus contributing to the large labour productivity gap between large and small firms. Although the number of SMEs that export is rising gradually, policies to help SMEs enter international markets would support inclusive growth. Reducing the high level of support to farmers, in part by lowering trade barriers, would also deepen Japan's integration in the world economy.
Economic Survey of Japan (survey page)