Japan’s economy has demonstrated resilience despite global headwinds, with growth projected to continue at a moderate pace supported by domestic demand. As Japan transitions toward a new equilibrium of higher prices and wages, macroeconomic policies must be carefully calibrated to balance maintaining inflation near the 2% target, securing fiscal sustainability, and fostering long term growth in an ageing society. Rising debt servicing costs highlight the importance of placing public debt on a downward path by addressing ageing related spending pressures, increasing tax revenues, and limiting reliance on supplementary budgets. In the context of a shrinking working-age population, boosting productivity and labour supply are needed to sustain living standards. Boosting productivity hinges on revitalising business dynamism, enhancing innovation spillovers, attracting more foreign capital, and fully harnessing digitalisation. Further raising female labour force participation and job quality, expanding the role of foreign workers, increasing labour market flexibility and strengthening adult learning systems are needed to ease labour shortages and counter demographic headwinds. Ensuring the additionality of Green Transformation (GX) investment, improving climate policy governance, simplifying permitting procedures and reinforcing the electricity grid would help meet climate targets.
SPECIAL FEATURE: BOOSTING PRODUCTIVITY GROWTH
Further reading
Reviving business dynamism in Japan, Blog post
