IMF Executive Board Concludes 2022 Article IV Consultation with Japan
IMF News, April 6, 2022
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- Published: April 6, 2022
Economic outlook and recent developments
- Real GDP contracted by 4.5 percent in 2020 and is estimated to have grown by 1.6 percent in 2021.
- GDP growth is projected at 2.4 percent in 2022 and 2.3 percent in 2023 (Table 1 projections).
- Domestic demand components (selected):
- Private consumption: 2020: -5.2; 2021: 1.3; 2022: 2.2; 2023: 2.7 (percent change).
- Gross Private Fixed Investment: 2020: -6.7; 2021: -0.9; 2022: 1.5; 2023: 4.2 (percent change).
- Business investment: 2020: -6.5; 2021: -0.7; 2022: 4.6 (percent change).
- Residential investment: 2019: 4.1; 2020: -7.9; 2021: -1.9; 2022: -0.1 (percent change).
- External sector and prices:
- Current account surplus: 2.9 percent of GDP in 2021.
- Exports of goods and services: 2020: -11.8; 2021: 11.6; 2022: 5.7; 2023: 5.6 (percent change).
- Imports of goods and services: 2019: 5.2; 2020: 3.2; 2021: 4.7 (percent change).
- Headline CPI inflation projected at 1.0 percent in 2022; inflation rose gradually during 2021 but remains well below the 2 percent target.
- Labor market and financial conditions:
- Business bankruptcies and non-performing loans are at historical lows.
- Banking system described as well-capitalized and liquid; near-term vulnerabilities contained.
- Risks and headwinds:
- Higher commodity prices and elevated uncertainty related to the Ukraine conflict are expected to slow domestic-demand recovery.
- External demand may be affected by geopolitical tensions, mainly due to an expected slowdown in Europe.
- Long-run constraints:
- Ageing and declining population will continue to weigh in the medium to long term.
- Significant scarring effects are considered unlikely due to strong policy support keeping unemployment low.
Fiscal, monetary, and structural policy guidance
- Fiscal policy:
- Near-term fiscal policy should remain flexible and supportive until the recovery is entrenched, while increasingly shifting toward more targeted measures.
- Need for a well-specified medium-term fiscal consolidation strategy that preserves growth to put public debt on a downward path and strengthen shock resilience.
- Public debt, gross: 2018: 231.4; 2019: 232.5; 2020: 236.1; 2021: 259.0; 2022: 263.1; 2023: 262.5; (end-period percent of GDP as presented in Table 1).
- Overall balance (percent of GDP): 2018: -3.1; 2019: -2.5; 2020: -3.0; 2021: -9.0; 2022: -7.6; 2023: -7.8; 2024 proj.: -3.5 (as shown in Table 1).
- Monetary policy:
- Directors agreed that accommodative monetary policy remains appropriate.
- Several Directors recommended further refinements to the monetary policy framework to help safeguard financial stability; some Directors noted the authorities view the current framework as effective and flexible.
- Given the effective lower bound constraint, most Directors considered that comprehensive and mutually reinforcing fiscal, monetary, and structural policies are essential to lift inflation durably to target.
- Suggestions to enhance clear communication to improve monetary policy effectiveness.
- Financial sector and macroprudential policy:
- Financial supervision should remain vigilant; pandemic-related financial support should be scaled down as the pandemic recedes.
- Directors urged further strengthening of financial supervision and regulation, broadening the scope of systemic risk assessment, and enhancing the macroprudential policy toolkit.
- Structural reforms and transformation:
- Reinvigorate reforms to increase labor supply, boost productivity, and support investment to lift potential growth and facilitate reflation.
- Accelerate reforms to increase labor supply, productivity, and wages, particularly of female and older workers, in light of an aging and shrinking population.
- Broaden and deepen corporate governance and regulatory reforms to improve business dynamism and spur investment.
- Leverage planned digital and green transformation to promote strong, sustainable, and inclusive growth.
- Directors welcomed Japan’s carbon neutrality commitment and noted the important role carbon pricing could play; further efforts needed to deliver on related targets.
- Digitalization: recent initiatives and a centralized Digital Agency expected to accelerate digitalization; recommendation to avoid job displacement of unskilled workers to ensure an inclusive transition.
- External policy:
- Directors welcomed Japan’s continued multilateral and regional efforts to promote open, stable, and transparent trade policies.
Executive Board Assessment and recommendations
- Directors commended strong policy support and steady vaccine rollout aiding recovery.
- Uncertainty from the pandemic and the war in Ukraine pose significant downside risks.
- Emphasis on policies to increase productivity and achieve inclusive and sustainable growth.
- Recommended policy mix:
- Maintain flexible, supportive near-term fiscal policy while transitioning to targeted measures.
- Implement a clear medium-term fiscal consolidation strategy that preserves growth.
- Keep accommodative monetary policy but consider refinements and clear communication.
- Strengthen financial supervision, widen systemic risk assessment, and enhance macroprudential tools.
- Scale down pandemic-related financial support as conditions normalize.
- Accelerate structural reforms to increase labor supply, productivity, and wages; broaden corporate governance and regulatory reforms.
- Leverage digital and green transitions; consider carbon pricing as part of achieving carbon neutrality.
Key statistics (selected from Table 1)
- Nominal GDP: US$ 4,937 Billion (2021).
- GDP per capita: US$ 39,340 (2021).
- Population: 126 Million (2021).
- Quota: SDR 30.8 billion (2021).
- Current account balance (in billions of US$): 2018: 203.5; 2019: 177.8; 2020: 176.0; 2021: 148.8; 2022: 141.7; 2023: 117.2; 2024 proj.: 142.2.
- Exports of goods, f.o.b. (in billions of US$): 2018: 689.1; 2019: 735.9; 2020: 695.0; 2021: 631.5; 2022: 748.5; 2023: 806.8; 2024 proj.: 856.2.
- Imports of goods, f.o.b. (in billions of US$): 2018: 645.0; 2019: 724.9; 2020: 693.6; 2021: 602.8; 2022: 732.1; 2023: 836.6; 2024 proj.: 878.1.
- Energy imports (in billions of US$): 2018: 117.8; 2019: 148.5; 2020: 131.9; 2021: 89.1; 2022: 127.7; 2023: 195.9; 2024 proj.: 168.5.
- Total reserves minus gold (in billions of US$): 2018: 1232.4; 2019: 1239.4; 2020: 1286.3; 2021: 1348.2.
- Real effective exchange rate (ULC-based, 2010=100): 2017: 76.5; 2018: 74.6; 2019: 75.4; 2020: 74.7.
- Old-age dependency (percent): 2017: 46.0; 2018: 46.9; 2019: 47.6; 2020: 48.3; 2021: 48.7; 2022: 48.9; 2023: 49.3.
IMF Executive Board press release: IMF Executive Board Concludes 2022 Article IV Consultation with Japan (April 6, 2022).
