Japan - Economic forecast summary (November 2018)


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Economic growth is projected to remain around 1% in 2018-19, as record-high corporate profits and labour shortages drive business investment. In addition, stronger wage gains will support a pick-up in private consumption in 2019. Although the October 2019 consumption tax hike will temporarily reduce demand, growth is projected to resume in early 2020, buoyed by additional government spending and the 2020 Olympic Games in Tokyo. Sustained growth, combined with higher oil prices, is expected to boost inflation to 1½ per cent (excluding the impact of the consumption tax hike) in 2020. 

Government debt relative to GDP, which is the highest ever recorded in the OECD area, poses serious risks. Achieving fiscal sustainability requires a detailed consolidation programme that includes gradual hikes in the consumption tax, beginning with the planned increase in 2019, and measures to control spending in the face of rapid population ageing. With the working-age population declining, additional policies to sustain employment and structural reforms to boost productivity are a priority. Monetary policy needs to remain expansionary until the 2% inflation target is achieved.


1. The diffusion indices show the number of firms responding they had an excess number of workers minus those reporting a shortage and the number responding that they had excess capacity minus those with a capacity shortage. A negative number thus indicates an overall shortage of labour and capacity.
2. Seasonally-adjusted data (three-month moving average) based on establishments with 30 or more workers.
3. Deflated by the consumer price index, excluding rent.
Source: Bank of Japan; and Ministry of Health, Labour and Welfare.


1. Government projections in July 2018. It assumes that the hike in the consumption tax rate from 8% to 10% is implemented as planned in 2019. The primary balance is central and local governments, as a percentage of GDP on a fiscal year basis.
2. Excluding the effects of the April 2014 consumption tax hike, which added 2 percentage points to inflation in FY 2014 according to a government estimate. It also excludes the scheduled October 2019 consumption tax hike, which would add 1 percentage point to inflation in the fourth quarter of 2019, and the impact of free childcare for children aged three to five, which would reduce it by 0.5 percentage point, according to an OECD estimate.
3. OECD measure, which excludes food and energy.
Source: Cabinet Office; OECD Economic Outlook 104 database; and Bank of Japan.


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Economic Survey of Japan (survey page)


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