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Economic growth is projected to reach 1¼ per cent in 2018 and 2019, supported by exports, business investment and private consumption. In addition to buoyant international trade, firms facing labour shortages will increase business investment and employment. Wages are projected to edge up, although the gains to households will be partially offset by higher inflation, which is expected to rise to 1½ per cent in 2019. The current account surplus is projected to remain close to 4% of GDP through 2019.
Government debt relative to GDP is the highest ever recorded in the OECD area, which poses serious risks. Achieving fiscal sustainability requires a detailed consolidation programme that includes measures to control spending in the face of rapid ageing, and gradual hikes in the consumption tax rate, beginning with the planned increase in 2019. The Bank of Japan is expected to maintain its expansionary monetary policy until the 2% inflation target is achieved, which is appropriate. Continued structural reforms to boost productivity and sustain employment are also a priority to achieve fiscal sustainability and improve well-being.
Economic Survey of Japan (survey page)