## Japan: IMF Executive Board Concludes 2016 Article IV Consultation

_IMF News, August 2, 2016_

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## Bibliographic details
- Published: August 2, 2016

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### Economic outlook and near-term assessment
- 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:
  - Economy expected to expand at about 0.3 percent in 2016.
  - Economy expected to expand at 0.1 percent in 2017, excluding the possible effect of the yet to be adopted economic stimulus package.
  - Over the medium term growth is projected to be in line with potential (which is on a declining trend).
  - Inflation is expected to rise to about 1 percent.
- Downside risks dominate in the medium term, including:
  - Weak external and domestic demand.
  - Uncertainty about the sustainability of low interest rates in a high public debt environment.
  - Financial stability risks in the context of unprecedented monetary easing.

### Executive Board assessment and findings
- 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:
  - Weak consumption, lackluster private investment, and sluggish exports.
  - Strong headwinds from a weak global recovery, appreciation and volatility of the exchange rate, and adverse demographics.
  - Low confidence in economic growth prospects holding back investment and credit demand.
  - Labor market duality and inflexibility hampering wage growth.
  - Limited financial sector support for risk-taking.
  - Stop-go nature of fiscal policy and optimistic growth assumptions undermining fiscal credibility.
  - Weak monetary transmission, sluggish wage-price dynamics, and a falling natural rate of interest impeding inflation expectations.
- External considerations:
  - Sluggish global growth and overcapacity in traded goods sector limited the export response to a weaker yen.
  - Declining commodity prices put downward pressure on headline inflation and delayed the Bank of Japan’s timeline to hit the inflation target.
  - Yen appreciation earlier in the year moved Japan’s external position toward a level broadly consistent with fundamentals but could make reflation more challenging.

### Policy recommendations and required reforms
- Structural reforms (essential for a reloaded Abenomics):
  - Raise productivity, labor supply, and potential growth.
  - Labor market reforms to reduce duality and increase labor force participation by female, older, and foreign workers.
  - Consider options to strengthen incentives for companies to raise wages and promote flexible labor contracts.
  - Welcome decision to lift minimum wage growth.
- Macroeconomic policy mix:
  - Complement structural reforms with fiscal and monetary demand support, balancing short-term growth with fiscal sustainability and financial stability.
  - Without a full policy upgrade, macroeconomic policies may need recalibration—implying larger fiscal consolidation needs and a looser monetary policy over a longer period.
- Fiscal policy and institutions:
  - Chart a credible course for fiscal consolidation to place debt on a downward trajectory, reduce policy uncertainty, and create near-term fiscal space.
  - 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.
  - Recommend containing social security spending growth and broadening the tax base.
  - Encourage adoption of spending rules and an independent assessment of the outlook and budget projections.
- Monetary policy and communication:
  - Emphasize need for clear, effective communication around monetary policy and better use of forward guidance.
- Financial sector and macroprudential measures:
  - Continue to strengthen the macroprudential policy toolkit.
  - Enhance monitoring of liquidity in the government bond market, financial institutions’ profitability, and foreign exchange risks.
  - Continue efforts to improve the resilience of regional banks and inter-agency coordination.

### Key statistics and indicators (selected; as reported)
- 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/:
  - 2011: -0.5
  - 2012: 1.7
  - 2013: 1.4
  - 2014: 0.0
  - 2015: 0.5
  - 2016 (Proj.): 0.3
  - 2017 (Proj.): 0.1
- Output Gap:
  - 2011: -3.3
  - 2012: -2.0
  - 2013: -1.1
  - 2014: -1.5
  - 2015: -1.7
- Inflation (annual average, CPI and measures noted in source):
  - Core CPI excluding VAT and Core measures cited; CPI effects include consumption tax increases in 2014 and 2015.
  - Inflation expected to rise to about 1 percent (medium term).
- Unemployment rate (annual average):
  - 2011: 4.6
  - 2012: 4.0
  - 2013: 3.4
  - 2014: 3.3
- General government (percent of GDP):
  - Revenue (2015): 34.1
  - Expenditure (2015): 38.3
  - Overall Balance:
    - 2011: -9.8
    - 2012: -8.8
    - 2013: -8.6
    - 2014: -6.2
    - 2015: -5.2
    - 2016: -5.1
    - 2017: -4.3
  - Primary balance:
    - 2015: -4.9
    - 2016: -4.5
    - 2017: -4.3
  - Structural primary balance examples provided in table (series values shown).
- Public debt, gross:
  - 2011: 231.6
  - 2012: 238.0
  - 2013: 244.5
  - 2014: 249.1
  - 2015: 248.0
  - 2016: 250.7
  - 2017: 254.0
- Macro-financial indicators:
  - Base money (percent change, end-period):
    - 2011: 22.2
    - 2012: 19.3
    - 2013: 60.3
    - 2014: 36.7
    - 2015: 29.1
    - 2016: 22.6
    - 2017: 18.3
  - Non-financial corporate debt in percent of GDP:
    - 2011: 191.3
    - 2012: 196.3
    - 2013: 225.6
    - 2014: 238.2
    - 2015: 234.4
    - 2016: 234.0
    - 2017: 236.1
  - Household debt in percent of disposable income:
    - 2011: 128.3
    - 2012: 127.1
    - 2013: 128.5
    - 2014: 129.3
    - 2015: 130.3
    - 2016: 131.8
- Balance of payments (in billions of US$):
  - Current account balance:
    - 2011: 129.8
    - 2012: 59.7
    - 2013: 45.9
    - 2014: 36.4
    - 2015: 135.6
    - 2016: 159.4
    - 2017: 143.2
  - Percent of GDP examples shown in table.
  - Exports of goods, f.o.b. (selected years):
    - 2011: 790.8
    - 2012: 776.0
    - 2013: 695.0
    - 2014: 699.4
    - 2015: 621.9
    - 2016: 620.5
    - 2017: 643.0
  - Imports of goods, f.o.b. (selected years):
    - 2011: 795.3
    - 2012: 829.9
    - 2013: 784.9
    - 2014: 799.3
    - 2015: 627.2
    - 2016: 601.2
    - 2017: 642.3
  - Energy imports:
    - 2011: 242.8
    - 2012: 272.2
    - 2013: 257.4
    - 2014: 241.7
    - 2015: 133.7
    - 2016: 112.6
- Exchange rates (annual average):
  - Yen/dollar rate:
    - 2011: 79.8
    - 2012: 97.6
    - 2013: 105.9
    - 2014: 121.0
    - 2015: 106.9
    - 2016: 101.1
    - 2017:  (table lists 2017 value where applicable)
  - Real effective exchange rate (ULC-based; 2005=100):
    - 2011: 118.5
    - 2012: 119.7
    - 2013: 96.7
    - 2014: 88.8
    - 2015: 85.0
- Demographic indicators:
  - Old-age dependency examples reported (series values shown in table).

*Source: Press Release No. 16/372 — Japan: IMF Executive Board Concludes 2016 Article IV Consultation (August 2, 2016).*

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## References

- [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)

_Source: https://www.imf.org/en/news/articles/2016/08/02/12/14/pr16372-japan-imf-executive-board-concludes-2016-article-iv-consultation_