{
  "title": "Japan: IMF Executive Board Concludes 2016 Article IV Consultation",
  "publication": "IMF News, August 2, 2016",
  "sourceUrl": "https://www.imf.org/en/news/articles/2016/08/02/12/14/pr16372-japan-imf-executive-board-concludes-2016-article-iv-consultation",
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  "summary": "Economic growth has slowed due to weak private consumption and sluggish investment, and inflation has lost its forward momentum. While financial conditions remain accommodative, ...",
  "publishDate": "2016-08-02",
  "sections": [
    {
      "heading": "Economic outlook and near-term assessment",
      "content": "- Economic growth has slowed due to weak private consumption and sluggish investment; inflation has lost its forward momentum.\n- Financial conditions remain accommodative, but falling stock prices and the appreciation of the yen have resulted in a modest tightening.\n- Authorities' policy responses include the adoption of the negative interest rate policy, plans for additional fiscal stimulus, and the postponement of the scheduled 2017 consumption tax hike by two and a half years.\n- Outlook and staff projections:\n  - Economy expected to expand at about 0.3 percent in 2016.\n  - Economy expected to expand at 0.1 percent in 2017, excluding the possible effect of the yet to be adopted economic stimulus package.\n  - Over the medium term growth is projected to be in line with potential (which is on a declining trend).\n  - Inflation is expected to rise to about 1 percent.\n- Downside risks dominate in the medium term, including:\n  - Weak external and domestic demand.\n  - Uncertainty about the sustainability of low interest rates in a high public debt environment.\n  - Financial stability risks in the context of unprecedented monetary easing."
    },
    {
      "heading": "Executive Board assessment and findings",
      "content": "- Directors welcomed the initial success of Abenomics and forceful policy implementation to lift growth and inflation, but noted continued subdued growth and persistent deflationary pressures.\n- Key headwinds and structural impediments identified:\n  - Weak consumption, lackluster private investment, and sluggish exports.\n  - Strong headwinds from a weak global recovery, appreciation and volatility of the exchange rate, and adverse demographics.\n  - Low confidence in economic growth prospects holding back investment and credit demand.\n  - Labor market duality and inflexibility hampering wage growth.\n  - Limited financial sector support for risk-taking.\n  - Stop-go nature of fiscal policy and optimistic growth assumptions undermining fiscal credibility.\n  - Weak monetary transmission, sluggish wage-price dynamics, and a falling natural rate of interest impeding inflation expectations.\n- External considerations:\n  - Sluggish global growth and overcapacity in traded goods sector limited the export response to a weaker yen.\n  - Declining commodity prices put downward pressure on headline inflation and delayed the Bank of Japan’s timeline to hit the inflation target.\n  - Yen appreciation earlier in the year moved Japan’s external position toward a level broadly consistent with fundamentals but could make reflation more challenging."
    },
    {
      "heading": "Policy recommendations and required reforms",
      "content": "- Structural reforms (essential for a reloaded Abenomics):\n  - Raise productivity, labor supply, and potential growth.\n  - Labor market reforms to reduce duality and increase labor force participation by female, older, and foreign workers.\n  - Consider options to strengthen incentives for companies to raise wages and promote flexible labor contracts.\n  - Welcome decision to lift minimum wage growth.\n- Macroeconomic policy mix:\n  - Complement structural reforms with fiscal and monetary demand support, balancing short-term growth with fiscal sustainability and financial stability.\n  - Without a full policy upgrade, macroeconomic policies may need recalibration—implying larger fiscal consolidation needs and a looser monetary policy over a longer period.\n- Fiscal policy and institutions:\n  - Chart a credible course for fiscal consolidation to place debt on a downward trajectory, reduce policy uncertainty, and create near-term fiscal space.\n  - Broad agreement that a pre-announced path for gradual but sustained increase in the consumption tax, insofar as administratively feasible, would mitigate negative impacts and enhance credibility.\n  - Recommend containing social security spending growth and broadening the tax base.\n  - Encourage adoption of spending rules and an independent assessment of the outlook and budget projections.\n- Monetary policy and communication:\n  - Emphasize need for clear, effective communication around monetary policy and better use of forward guidance.\n- Financial sector and macroprudential measures:\n  - Continue to strengthen the macroprudential policy toolkit.\n  - Enhance monitoring of liquidity in the government bond market, financial institutions’ profitability, and foreign exchange risks.\n  - Continue efforts to improve the resilience of regional banks and inter-agency coordination."
    },
    {
      "heading": "Key statistics and indicators (selected; as reported)",
      "content": "- Nominal GDP: US$ 4,124 Billion (2015)\n- Population: 127 Million (2015)\n- GDP per capita: US$ 32,480 (2015)\n- Quota: SDR 15.6 Billion (2015)\n- Real GDP growth (percent change) 1/:\n  - 2011: -0.5\n  - 2012: 1.7\n  - 2013: 1.4\n  - 2014: 0.0\n  - 2015: 0.5\n  - 2016 (Proj.): 0.3\n  - 2017 (Proj.): 0.1\n- Output Gap:\n  - 2011: -3.3\n  - 2012: -2.0\n  - 2013: -1.1\n  - 2014: -1.5\n  - 2015: -1.7\n- Inflation (annual average, CPI and measures noted in source):\n  - Core CPI excluding VAT and Core measures cited; CPI effects include consumption tax increases in 2014 and 2015.\n  - Inflation expected to rise to about 1 percent (medium term).\n- Unemployment rate (annual average):\n  - 2011: 4.6\n  - 2012: 4.0\n  - 2013: 3.4\n  - 2014: 3.3\n- General government (percent of GDP):\n  - Revenue (2015): 34.1\n  - Expenditure (2015): 38.3\n  - Overall Balance:\n    - 2011: -9.8\n    - 2012: -8.8\n    - 2013: -8.6\n    - 2014: -6.2\n    - 2015: -5.2\n    - 2016: -5.1\n    - 2017: -4.3\n  - Primary balance:\n    - 2015: -4.9\n    - 2016: -4.5\n    - 2017: -4.3\n  - Structural primary balance examples provided in table (series values shown).\n- Public debt, gross:\n  - 2011: 231.6\n  - 2012: 238.0\n  - 2013: 244.5\n  - 2014: 249.1\n  - 2015: 248.0\n  - 2016: 250.7\n  - 2017: 254.0\n- Macro-financial indicators:\n  - Base money (percent change, end-period):\n    - 2011: 22.2\n    - 2012: 19.3\n    - 2013: 60.3\n    - 2014: 36.7\n    - 2015: 29.1\n    - 2016: 22.6\n    - 2017: 18.3\n  - Non-financial corporate debt in percent of GDP:\n    - 2011: 191.3\n    - 2012: 196.3\n    - 2013: 225.6\n    - 2014: 238.2\n    - 2015: 234.4\n    - 2016: 234.0\n    - 2017: 236.1\n  - Household debt in percent of disposable income:\n    - 2011: 128.3\n    - 2012: 127.1\n    - 2013: 128.5\n    - 2014: 129.3\n    - 2015: 130.3\n    - 2016: 131.8\n- Balance of payments (in billions of US$):\n  - Current account balance:\n    - 2011: 129.8\n    - 2012: 59.7\n    - 2013: 45.9\n    - 2014: 36.4\n    - 2015: 135.6\n    - 2016: 159.4\n    - 2017: 143.2\n  - Percent of GDP examples shown in table.\n  - Exports of goods, f.o.b. (selected years):\n    - 2011: 790.8\n    - 2012: 776.0\n    - 2013: 695.0\n    - 2014: 699.4\n    - 2015: 621.9\n    - 2016: 620.5\n    - 2017: 643.0\n  - Imports of goods, f.o.b. (selected years):\n    - 2011: 795.3\n    - 2012: 829.9\n    - 2013: 784.9\n    - 2014: 799.3\n    - 2015: 627.2\n    - 2016: 601.2\n    - 2017: 642.3\n  - Energy imports:\n    - 2011: 242.8\n    - 2012: 272.2\n    - 2013: 257.4\n    - 2014: 241.7\n    - 2015: 133.7\n    - 2016: 112.6\n- Exchange rates (annual average):\n  - Yen/dollar rate:\n    - 2011: 79.8\n    - 2012: 97.6\n    - 2013: 105.9\n    - 2014: 121.0\n    - 2015: 106.9\n    - 2016: 101.1\n    - 2017:  (table lists 2017 value where applicable)\n  - Real effective exchange rate (ULC-based; 2005=100):\n    - 2011: 118.5\n    - 2012: 119.7\n    - 2013: 96.7\n    - 2014: 88.8\n    - 2015: 85.0\n- Demographic indicators:\n  - Old-age dependency examples reported (series values shown in table).\n\nSource: Press Release No. 16/372 — Japan: IMF Executive Board Concludes 2016 Article IV Consultation (August 2, 2016).\n\n---\n\n\n References\n\n- The Executive Board\n- IMF News Article: How to Reload Abenomics\n- Japan and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2016/08/02/12/14/pr16372-japan-imf-executive-board-concludes-2016-article-iv-consultation"
    }
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    "Published: August 2, 2016",
    "Economic growth has slowed due to weak private consumption and sluggish investment; inflation has lost its forward momentum.",
    "Financial conditions remain accommodative, but falling stock prices and the appreciation of the yen have resulted in a modest tightening.",
    "Authorities' policy responses include the adoption of the negative interest rate policy, plans for additional fiscal stimulus, and the postponement of the scheduled 2017 consumption tax hike by two and a half years.",
    "Outlook and staff projections:",
    "Downside risks dominate in the medium term, including:",
    "Directors welcomed the initial success of Abenomics and forceful policy implementation to lift growth and inflation, but noted continued subdued growth and persistent deflationary pressures.",
    "Key headwinds and structural impediments identified:",
    "External considerations:",
    "Structural reforms (essential for a reloaded Abenomics):",
    "Macroeconomic policy mix:",
    "Fiscal policy and institutions:",
    "Monetary policy and communication:",
    "Financial sector and macroprudential measures:",
    "Nominal GDP: US$ 4,124 Billion (2015)",
    "Population: 127 Million (2015)",
    "GDP per capita: US$ 32,480 (2015)",
    "Quota: SDR 15.6 Billion (2015)",
    "Real GDP growth (percent change) 1/:",
    "Output Gap:",
    "Inflation (annual average, CPI and measures noted in source):",
    "Unemployment rate (annual average):",
    "General government (percent of GDP):",
    "Public debt, gross:",
    "Macro-financial indicators:",
    "Balance of payments (in billions of US$):",
    "Exchange rates (annual average):",
    "Demographic indicators:",
    "[The Executive Board](http://www.imf.org/external/np/sec/memdir/eds.aspx)",
    "[IMF News Article: How to Reload Abenomics](https://www.imf.org/en/News/Articles/2016/08/02/13/00/NA080216-How-to-Reload-Abenomics)",
    "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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