Japan: 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan

IMF Staff Country Reports, April 2, 2025

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After three decades of near-zero inflation, signs are growing that Japan’s economy is reaching a new equilibrium with inflation sustained at the Bank of Japan’s two percent headline inflation target.
Japan continues to face challenges from its aging population and high public debt.
Growth is expected to accelerate in 2025 and converge to its potential of 0.5 percent in the medium term.
Public debt is high and is expected to rise from 2030, driven by a higher interest bill and expenditure pressures related to spending on health and long-term care for an aging population.
The monetary policy stance is appropriately accommodative and should help ensure inflation expectations rise sustainably to the 2-percent inflation target.
Advancing structural reforms, including improving labor mobility, would help improve Japan’s allocative efficiency and boost productivity.

Growth: expected to accelerate in 2025 and converge to potential of 0.5 percent in the medium term.
Inflation: sustained at the Bank of Japan’s two percent headline inflation target; re-anchoring inflation expectations is a policy priority.
Public debt trajectory: high now and expected to rise from 2030 because of a higher interest bill and aging-related spending pressures on health and long-term care.

Rebuild fiscal buffers to prepare for rising expenditure pressures linked to an aging population.
Re-anchor inflation expectations to sustain the 2-percent inflation target.
Maintain an appropriately accommodative monetary policy stance to support the re-anchoring of inflation expectations.
Advance structural reforms to support potential growth, with specific emphasis on improving labor mobility to raise allocative efficiency and productivity.

Subjects: Anti-money laundering and combating the financing of terrorism (AML/CFT), Central bank policy rate, Crime, Financial services, Inflation, Labor, Labor markets, Labor shortages, Prices.
Keywords: Anti-money laundering and combating the financing of terrorism (AML/CFT), article IV consultation discussion, Asia and Pacific, balance sheet reduction, BOJ's price stability target, Central bank policy rate, FATF follow-up report, Global, Inflation, inflation expectation, Labor markets, Labor shortages.

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