Japan - Economic forecast summary (November 2017)


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Growth is estimated to have picked up to 1.5% in 2017, aided by stronger international trade and fiscal stimulus. Although fiscal consolidation is set to resume in 2018, growth is projected to remain close to 1% in 2018 and 2019, as export growth remains robust. Employment is projected to peak in 2018 as the decline in the working-age population accelerates. Sustained above-potential growth will boost inflation to 1% in 2018 and around 1½ per cent in 2019 (excluding the impact of the increase in the consumption tax rate).

The Bank of Japan should maintain its expansionary monetary policy until the 2% inflation target is achieved. Structural reforms, including measures to improve corporate governance, facilitate the exit of non-viable firms and raise productivity in small firms, are key. Increasing female employment by expanding childcare and improving work-life balance is also essential to boost growth and help put the government debt ratio on a downward trend.

In contrast to household and corporate debt, government debt, which has surpassed 220% of GDP, the highest ever recorded in the OECD area, poses a serious risk. The debt burden is limited at present by negative interest rates on government bonds of less than ten years maturity, as a result of purchases by the Bank of Japan, which now owns 41% of the outstanding stock of government bonds. Achieving fiscal sustainability requires measures to durably strengthen economic growth and a more detailed consolidation path, including gradual hikes in the consumption tax rate and measures to control social spending in the face of rapid population ageing.


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Economic Survey of Japan (survey page)


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