IMF Executive Board Concludes 2025 Article IV Consultation with Japan
IMF News, April 2, 2025
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- Published: April 2, 2025
Outlook and macroeconomic assessment
- After three decades of near-zero inflation, signs are growing that Japan’s economy can reach a new equilibrium with inflation sustained at the Bank of Japan’s 2 percent headline inflation target and growth at the 0.5 percent potential.
- 2024 experienced a significant growth slowdown due to temporary supply-side disruptions; growth is expected to pick up to 1.2 percent in 2025.
- Private demand is expected to replace public consumption as the main growth driver in 2025.
- Above inflation wage growth is expected to strengthen in 2025, boosting households’ disposable income and consumption.
- Private investment is expected to remain strong, supported by high corporate profits and accommodative financial conditions.
- Inflation is expected to converge from above to the BoJ’s 2-percent target in late 2025, helped by a moderation in oil and food prices.
- Financial conditions remain accommodative but are gradually tightening amid increasing real interest rates and rising macroeconomic uncertainty.
Risks
- Risks to growth are tilted to the downside:
- A slowdown in the global economy.
- Weak domestic consumption.
- Tighter financial conditions in a context of high public debt.
- Risks to inflation are broadly balanced:
- Downside risk: inflation expectations stalling below the inflation target.
- Upside risks: rising food and energy prices, and stronger-than-expected wage growth.
- Additional financial-sector risks noted:
- Increasing macroeconomic uncertainty.
- Potentially faster-than-expected interest rate increases.
- Bankruptcies among SMEs.
Fiscal stance and public debt
- The estimated fiscal deficit and general government debt in 2024 are lower than expected at the time of the 2024 Article IV, as expenditures to support the economic recovery were partially phased out and revenues overperformed.
- Fiscal deficit estimated to have worsened modestly from 2.3 percent of GDP in 2023 to 2.5 percent of GDP in 2024.
- Under current policies, the fiscal deficit is projected to continue rising over the medium term.
- Executive Directors emphasized the need to continue to rebuild fiscal buffers and fully offset:
- The rising cost of interest on the public debt.
- Expenditure pressures associated with health and long-term care.
- Recommended fiscal measures:
- Clear plan to fully offset rising debt-service costs and demographic expenditure pressures.
- Measures to raise revenue and improve the quality of social spending.
- Rationalize subsidies while preserving high-quality public investment.
- Discipline in managing supplementary budgets.
- Strengthen the medium-term fiscal framework and adopt a robust debt management strategy.
Monetary policy and exchange rate
- Bank of Japan developments:
- Successful exit from unconventional policies in March 2024.
- Initiated tapering of JGB purchases and gradually raised the policy rate to 0.5 percent.
- Directors agreed with the BoJ’s current accommodative monetary policy stance and noted that a gradual withdrawal of monetary accommodation will be appropriate if staff’s baseline forecast materializes.
- Directors urged the BoJ to remain data-dependent and flexible given uncertainty about:
- The neutral policy rate.
- The effectiveness of monetary policy transmission.
- The extent of re-anchoring of inflation expectations.
- Communication and market functioning:
- Commended the BoJ for a well communicated and smoothly implemented balance sheet reduction plan, which will improve government bond market functioning and price discovery.
- Welcomed Japan’s longstanding commitment to a flexible exchange rate regime and underscored limiting foreign exchange intervention to exceptional circumstances.
Financial sector resilience and supervision
- Directors concurred that the financial system remains broadly resilient.
- Encouraged continued implementation of the main recommendations from the 2024 Financial Sector Stability Assessment to:
- Further strengthen systemic risk monitoring.
- Improve financial sector oversight.
Structural policies and growth-enhancing reforms
- Directors emphasized the need for structural policies to improve efficiency and productivity in the context of an aging population, including:
- Increasing labor market participation and flexibility, including for seniors and women.
- Facilitating labor mobility to address labor shortages.
- Leveraging the benefits of AI adoption.
- Expanding childcare facilities.
- Enhancing training programs to develop IT and AI skills.
- Attracting foreign workers.
- Directors welcomed Japan’s commitment to green transformation and urged further progress.
- On industrial policy, Directors recommended focusing support on areas with externalities and subjecting measures to cost‑benefit analysis.
- Directors broadly welcomed Japan’s commitment to multilateral economic cooperation and further regional integration, and commended support for a rules‑based trade system and the Fund’s capacity development efforts.
Key statistics and projections (selected)
- Nominal GDP: US$ 4,213 Billion (2023)
- GDP per capita: US$ 33,845 (2023)
- Population: 124 Million (2023)
- Quota: SDR 30.8 billion (2023)
- Real GDP growth (percent change, period average):
- 2021: 2.7
- 2022: 0.9
- 2023: 1.5
- 2024 Est.: 0.1
- 2025 Proj.: 1.2
- 2026 Proj.: 0.8
- 2027 Proj.: 0.6
- 2028 Proj.: 0.5
- Headline CPI (percent change, period average):
- 2021: -0.2
- 2022: 2.5
- 2023: 3.2
- 2024: 2.4
- Government (percent of GDP):
- Revenue 2021–2024: 36.3, 37.5, 36.8, 36.9
- Expenditure 2021–2024: 42.5, 41.8, 39.1, 39.4
- Overall Balance 2021–2024: -6.1, -4.2, -2.5, -3.0
- Primary balance 2021–2024: -5.5, -3.8, -2.0, -2.1
- Structural primary balance 2021–2024: -4.9, -3.2
- Public debt, gross (percent of GDP) 2021–2030: 253.7, 248.3, 240.0, 236.7, 233.1, 230.7, 228.8, 227.8, 227.6, 228.0
- Non-financial corporate debt in percent of GDP (end-of-period) 2021–2030: 157.1, 161.2, 156.7, 159.5, 160.9, 162.1, 163.3, 165.3, 166.0, 168.3
- Current account balance (in billions of USD) 2021–2030: 196.2, 89.9, 158.5, 193.0, 177.9, 167.7, 170.1, 175.2, 175.5, 169.3
- Current account balance (percent of GDP) 2021–2024: 3.9, 3.8, 4.8, 4.4
- Trade balance (in billions of USD) 2021–2030: 16.4, -115.8, -48.2, -26.1, -11.3, -15.6, -14.4, -11.4, -8.9, -7.2
- Exports of goods, f.o.b. (in billions of USD) 2021–2030: 749.2, 752.5, 713.7, 692.3, 700.2, 706.6, 722.7, 736.9, 755.4, 771.4
- Imports of goods, f.o.b. (in billions of USD) 2021–2030: 732.7, 868.3, 761.9, 718.5, 711.5, 722.1, 737.1, 748.4, 764.3, 778.6
- Energy imports (in billions of USD) 2021–2030: 127.8, 195.5, 152.9, 138.3, 124.6, 108.2, 98.0, 90.0, 83.0, 76.7
- Total reserves minus gold (in billions of US$) 2021–2024: 1356.2, 1178.3, 1238.5, 1159.7
- Exchange rates (period average, Yen/dollar): 109.8, 131.5, 140.5, 151.4 (2021–2024)
IMF Executive Board Concluding Statement, April 2, 2025.
