## Japan's Economic Outlook in Five Charts

_IMF News, November 28, 2018_

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## Bibliographic details
- Published: November 28, 2018

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### Recent growth and macroeconomic stance
- Japan has had an extended period of strong economic growth driven by a mix of export growth, private investment, and consumption.
- After a temporary soft patch earlier in the year, GDP growth is expected to remain above its estimated potential in 2018 at 1.1 percent.
- Financial conditions overall remain generally favorable.
- The Bank of Japan’s (BoJ’s) monetary policy tools:
  - negative interest rate policy (for short-term rates);
  - yield curve control framework targeting the 10-year Japanese Government Bond (JGB) yield at near zero;
  - massive expansion of its balance sheet through purchases of JGBs, corporate bonds, real estate investment trusts, and exchange traded funds.
- Inflation dynamics:
  - Inflation has gained momentum on the back of higher energy prices but—despite a very tight labor market—remains below the BoJ’s 2 percent target.
  - Following a tax-induced spike in 2020, inflation will rise over the medium term, but likely remain below the BoJ’s 2 percent target.
  - Part of the inflation inertia reflects Japan’s long experience with virtually no inflation and inflation expectations closely linked to that experience.

### Labor market, reforms, and demographics
- Policy and labor market outcomes:
  - Six years of “Abenomics” saw lower fiscal deficits, near-record unemployment, and higher female labor force participation.
  - Japan's parliament passed labor market legislation to:
    - set a legal cap on overtime work;
    - ensure equal treatment for regular and nonregular workers;
    - exempt skilled professional workers from working-hour regulations.
  - The effectiveness of the new laws will hinge on implementation.
  - Efforts to bring more workers into the labor force are meeting with success, with women, older workers, and inflows of foreign labor contributing to the gains.
  - Corporate governance reforms have advanced, and the trade agenda has accelerated with two new trade agreements.
- Demographic pressures:
  - By 2050 the number of aged dependents per worker will rise to about 75 percent, the highest of any country.
  - Over the next four decades the share of the population aged 65 years and older will rise from its current three-in-ten persons to almost four-in-ten persons.
  - The aging and shrinking workforce will depress growth and productivity due to a shrinking and aging labor force and a shift toward consumption.
  - Fiscal challenges will magnify with rising age-related government spending and a shrinking tax base.

### Risks and fiscal outlook
- Downside risks to growth:
  - The planned consumption tax increase in 2019 could hinder near-term growth momentum.
  - Weaker global growth and heightened uncertainty—from trade or geopolitical tensions—could undermine growth, trigger yen appreciation and equity market shocks, and renew deflationary risks.
- Fiscal timeline and sustainability:
  - The target date for a return to fiscal surplus was reset from FY2020 to FY2025.
  - A solid plan for fiscal consolidation over the medium and long term is needed to address demographic challenges and lessen debt sustainability risks.
  - The planned increase in the consumption tax rate in 2019 will bring much-needed revenue.
  - A concrete strategy is needed to stabilize and reduce the large public debt over the medium and long-term—particularly given an aging population, labor force decline, and rising expenditures for healthcare and other social security programs.

### Key statistics and dates (as reported)
- Six years (duration of “Abenomics” outcomes referenced).
- 2018 GDP growth expected at 1.1 percent.
- BoJ inflation target: 2 percent.
- Tax-induced inflation spike: 2020.
- Planned consumption tax increase: 2019.
- Fiscal surplus target reset from FY2020 to FY2025.
- By 2050: aged dependents per worker about 75 percent.
- Share aged 65+ rising from current three-in-ten persons to almost four-in-ten persons over the next four decades.

*Source: Japan's Economic Outlook in Five Charts (November 28, 2018)*

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## References

- [Japan: Economic Health Check](https://www.imf.org/en/videos/view/5972235057001)
- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the report](https://www.imf.org/en/Publications/CR/Issues/2018/11/27/Japan-2018-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-Executive-46394)
- [Read the press release](https://www.imf.org/en/News/Articles/2018/11/28/pr18442-japan-2018-article-iv-consultation)
- [More research on Japan](http://www.imf.org/en/Publications/CR/Issues/2018/11/27/Japan-Selected-Issues-46401)
- [Asia’s economic outlook](https://www.imf.org/en/Publications/REO/APAC/Issues/2018/10/05/areo1012)
- [Japan and the IMF](https://www.imf.org/en/Countries/jpn)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2018/11/27/na112818-japans-economic-outlook-in-five-charts_