Japan 2019 Article IV Mission Press Conference: Opening Remarks by Kristalina Georgieva, IMF Managing Director

IMF News, November 25, 2019

Source details

Canonical URL: Japan 2019 Article IV Mission Press Conference: Opening Remarks by Kristalina Georgieva, IMF Managing Director

Event: Japan 2019 Article IV Consultation press conference (Opening remarks by Kristalina Georgieva).
Location: Tokyo, Japan.
Date: November 25, 2019.
Main focus: Japan’s demographic transition—rapid aging and shrinking of the population and the workforce—and implications for productivity, growth, government revenues and expenditures, and financial stability.
Context: Visit included meetings with Deputy Prime Minister Asō, Bank of Japan Governor Kuroda, Minister of State Nishimura, and planned meeting with Prime Minister Abe. Also included visits related to climate resilience such as Tokyo’s Metropolitan area flood control system and consideration of Typhoon 19 impacts.

Japan’s recent economic performance described as solid; economy expected to remain resilient.
Under current policies:
- Real GDP growth in 2019: 0.8 percent.
- Real GDP growth projected for 2020: 0.5 percent (external demand remains soft and dampens export-related investment).
Evidence indicates October consumption tax increase implemented smoothly due to government countermeasures.
Inflation:
- Headline consumer price inflation projected to continue a slow upward trend towards—but still below— the Bank of Japan’s 2 percent target.
Potential growth:
- Growth projected to remain in line with Japan’s estimated potential growth rate of about 0.5 percent.

Near-term and medium-term downside risks:
- A sharper-than-anticipated global slowdown and heightened uncertainty.
- Softening of the near-term durability of domestic demand.
- Rising financial stability risks in the midst of prolonged accommodative monetary policy.
- Vulnerability to climate change and natural disasters remains large for Japan.
Policy space constraints:
- Both fiscal policy and monetary policy are described as stretched—leaving limited room to respond to shocks.
Other challenges:
- Inflation remains well below BoJ’s target.
- Public debt is not yet on a sustainable path.
- Household incomes remain stagnant.

Timeframe: Seven years into Abenomics.
Notable successes highlighted:
- Economic growth has been above potential for three years.
- Strong per capita GDP growth compared to other advanced economies.
- Disposable income inequality has been contained.
- Risk of deflation has receded.
- Fiscal deficit has been reduced.
- Unemployment is very low.
- A substantial number of women have joined the workforce.
Remaining gaps: Need to do more to strengthen the outlook given inflation shortfall, public debt, and stagnant household incomes.

General strategy:
- The basic economic strategy underpinning Abenomics remains sound: it needs to be sustainable, flexible, and accelerated.
- The package has to be implemented as a whole, with policy elements mutually reinforcing each other.
Fiscal policy:
- Should be supportive to protect near-term growth and promote inflation momentum.
- Beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.
- Addressing uncertainty from fiscal sustainability could help with growth and inflation over time.
Monetary policy:
- The BoJ’s accommodative stance needs to continue to support reflation and growth.
- Financial sector oversight should be strengthened to mitigate rising financial stability risks.
Structural reform (the “third arrow”):
- Labor market reforms are the top priority—particularly to enhance worker productivity and the passthrough of demand stimulus to wages and prices.
- Further measures for women: more training and career opportunities are needed for women to excel, building on increased female labor market participation.
- Other priorities: broadening and deepening corporate governance reform, further trade liberalization, and measures to unlock Japan’s immense productivity.

Demographic trend: Rapid aging and shrinking of the population and the labor force highlighted as a central theme and a major medium-term challenge.
Long-term projection and mitigation potential:
- Over the next 40 years, worsening demographics will slow Japan’s real GDP.
- IMF staff analysis indicates that an ambitious and coordinated reform program can significantly mitigate this risk and, offset up to 15 percent of the real GDP slowdown.

Recent events: October’s Typhoon 19 caused tragic loss of life and destruction; condolences and empathy expressed.
Japan’s role: Japan is ahead of other advanced economies in terms of demographic trends and is a leader in coping with climate change and disaster resilience. The world could learn from Japan’s flood control and disaster resilience measures.
IMF activity: IMF staff have analyzed economic challenges of Japan’s changing demographics; these works are being collected into a book to be published in the new year (outline distributed earlier).

Source: Japan 2019 Article IV Mission Press Conference: Opening Remarks by Kristalina Georgieva, IMF Managing Director, November 25, 2019.