November 28, 2018
The Japanese economy is growing above its estimated potential. After a temporary soft patch early in the year, domestic demand recovered in the second quarter.
", "publishDate": "2018-11-28", "sections": [ { "heading": "Growth and inflation", "content": "- The Japanese economy is growing above its estimated potential.\n- After a temporary soft patch early in the year, domestic demand recovered in the second quarter.\n- Real GDP growth is projected to remain above trend in 2018 at 1.1 percent.\n- Headline and core inflation have gained momentum in recent months on the back of higher energy prices but remain well below Bank of Japan’s (BoJ) two percent inflation target.\n- Underlying growth is expected to remain solid, notwithstanding the scheduled increase in the consumption tax rate in October 2019.\n- Over the medium term, growth is projected to moderate and the output gap close.\n- Following a consumption tax-induced spike in 2020, inflation will rise over the medium term, but likely remain below the BoJ’s target." }, { "heading": "External sector and exchange rates", "content": "- The current account surplus increased marginally in 2017 due to a stronger income balance, but is expected to shrink by the end of 2018 due to smaller goods trade and income balances.\n- The real effective exchange rate appreciated slightly in the first nine months of 2018 relative to end-2017.\n- The projected 2018 current account balance is preliminarily assessed as in line with the current account level consistent with fundamentals and desirable policies.\n- Directors noted that a credible fiscal consolidation plan combined with bolder structural reforms are needed to maintain external balance over the medium term.\n- Advancing multilateralism would help mitigate inward spillovers from heightened trade tensions." }, { "heading": "Fiscal policy and public debt", "content": "- Directors generally underscored the importance of maintaining a neutral fiscal stance to support near-term growth and reflation.\n- The authorities plan to implement temporary measures to alleviate the adverse impact of the scheduled consumption tax increase, accompanied by clear communication to the public.\n- For the medium term, Directors saw merit in developing a well-specified fiscal framework, based on realistic assumptions, to reduce policy uncertainty and anchor a gradual consolidation path toward debt sustainability while addressing demographic challenges.\n- While an independent fiscal institution could be helpful, some Directors saw scope to achieve these objectives within the existing institutional arrangements.\n- Selected fiscal and debt indicators (as reported):\n - Nominal GDP: US$ 4,873 Billion (2017)\n - GDP per capita: US$ 38,444 (2017)\n - Population: 127 Million (2017)\n - Quota: SDR 30.8 billion (2017)\n - General government revenue (percent of GDP): 30.8, 31.6, 33.3, 34.2, 34.1, 33.2\n - General government expenditure (percent of GDP): 39.4, 39.5, 38.9, 38.0, 37.8, 37.5, 36.9, 36.0\n - Overall Balance (percent of GDP): -8.6, -7.9, -5.6, -3.8, -2.8\n - Primary balance (percent of GDP): -7.5, -7.0, -4.9, -3.2, -2.9, -3.3\n - Structural primary balance (percent of GDP): -6.3, -6.4, -4.6, -3.6, -3.4\n - Public debt, gross (percent of GDP): 229.0, 232.5, 236.1, 231.3, 235.6, 237.6, 238.2, 236.6" }, { "heading": "Monetary policy and financial sector", "content": "- Monetary policy should remain accommodative, possibly for an extended period to successfully reflate the economy, while carefully monitoring and mitigating side-effects.\n- Directors stressed that effective communication and forward guidance would help reduce market volatility and guide inflation expectations.\n- Directors recognized challenges facing the financial sector from demographic pressures and low interest rates.\n- Progress was welcomed on implementing the 2017 FSAP recommendations, in particular the new more forward-looking supervisory framework.\n- Directors highlighted the importance of enhancing risk management, financial oversight, and the macroprudential framework.\n- They welcomed the authorities’ close engagement with regional financial institutions to help adapt business models to demographic trends.\n- Priority areas include facilitating financial institutions’ use of Fintech and strengthening crypto-asset oversight." }, { "heading": "Structural reforms and labor market", "content": "- Directors welcomed the authorities’ ambitious structural reform agenda aimed at lifting potential growth.\n- They stressed the importance of strong government commitment to mutually-supportive reforms, with priority given to labor market reforms to enhance labor supply including from female, older, and foreign workers.\n- Recommended actions:\n - Eliminate tax and social security disincentives to full-time and regular work.\n - Reduce the gender wage gap.\n - Increase the availability of childcare and nursing facilities.\n - Further deregulate product and services markets, facilitate entry and exit of firms, promote small- and medium-sized enterprises, and deepen corporate governance reform." }, { "heading": "Executive Board assessment and additional initiatives", "content": "- Executive Directors welcomed Japan’s remarkable economic growth performance, especially in per capita terms, and the prospect of continued above-potential growth in the near term.\n- Directors noted that inflation remains below target and that downside risks have risen, notably from the upcoming consumption tax rate increase and deteriorating global conditions.\n- Directors commended the authorities for volunteering to participate in the Fund’s initiative to assess efforts to address supply-side of corruption in Japan’s Article IV consultation and looked forward to continued progress in enforcing foreign bribery laws." }, { "heading": "Key quantitative indicators (selected series and values as reported)", "content": "- Real GDP growth (annual percent change): 2012: 1.5; 2013: 2.0; 2014: 0.4; 2015: 1.4; 2016: 1.0; 2017: 1.7; 2018: 1.1; 2019 Proj.: 0.9\n- Output Gap (percent): -3.7, -2.2, -2.6, -2.0, -0.7, -0.3\n- Unemployment rate (annual average, percent): 4.3, 4.0, 3.6, 3.1\n- Public debt, gross (percent of GDP): 229.0, 232.5, 236.1, 231.3, 235.6, 237.6, 238.2, 236.6\n- Non-financial corporate debt (percent of GDP): 143.1, 142.0, 143.0, 137.9, 136.9, 139.7, 146.7, 147.0\n- Household debt (percent of disposable income): 98.3, 100.2, 100.8, 100.5, 101.7, 101.1, 101.0\n- Current account balance (in billions of USD): 59.7, 45.9, 36.8, 136.4, 194.9, 196.1, 183.7, 196.2\n- Trade balance (in billions of USD): -53.9, -90.0, -99.9, -7.4, 51.4, 44.5, 34.7, 43.0\n- Exports of goods (in billions of USD): 776.0, 695.0, 699.7, 622.1, 636.3, 689.2, 750.0, 766.6\n- Imports of goods (in billions of USD): 829.9, 784.9, 799.7, 629.5, 585.0, 644.8, 715.3, 723.7\n- Energy imports (in billions of USD): 272.2, 257.4, 241.8, 133.8, 94.9, 117.8, 153.5, 150.9\n- Total reserves minus gold (in billions of US$): 1227.2, 1237.3, 1231.0, 1207.1, 1188.4, 1232.4\n- Yen/dollar rate: 79.8, 97.6, 105.9, 121.0, 108.8, 112.2, 109.8, 109.3\n- Yen/euro rate: 102.6, 129.6, 140.8, 134.3, 120.4, 126.7, 130.3, 127.9\n- Real effective exchange rate (ULC-based, 2010=100): 106.5, 86.3, 78.2, 75.3, 85.1, 78.3\n- Real effective exchange rate (CPI-based, 2010=100): 100.6, 80.4, 75.2, 70.2, 79.6, 75.6\n- Demographic indicators — Old-age dependency (percent): 39.8, 41.8, 43.5, 44.8, 46.0, 46.9, 47.8\n\nIMF Communications Department — Press Release No. 18/442, November 28, 2018. Executive Board concluded the Article IV consultation with Japan on November 21, 2018.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- November 28, 2018\n- October 4, 2018\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/2018/11/28/pr18442-japan-2018-article-iv-consultation" } ], "bullets": [ "[Markdown version](/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/index.md)", "[Structured JSON version](/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/index.json)", "[Bundle manifest](/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/bundle-manifest.json)", "Published: November 28, 2018", "The Japanese economy is growing above its estimated potential.", "After a temporary soft patch early in the year, domestic demand recovered in the second quarter.", "Real GDP growth is projected to remain above trend in 2018 at 1.1 percent.", "Headline and core inflation have gained momentum in recent months on the back of higher energy prices but remain well below Bank of Japan’s (BoJ) two percent inflation target.", "Underlying growth is expected to remain solid, notwithstanding the scheduled increase in the consumption tax rate in October 2019.", "Over the medium term, growth is projected to moderate and the output gap close.", "Following a consumption tax-induced spike in 2020, inflation will rise over the medium term, but likely remain below the BoJ’s target.", "The current account surplus increased marginally in 2017 due to a stronger income balance, but is expected to shrink by the end of 2018 due to smaller goods trade and income balances.", "The real effective exchange rate appreciated slightly in the first nine months of 2018 relative to end-2017.", "The projected 2018 current account balance is preliminarily assessed as in line with the current account level consistent with fundamentals and desirable policies.", "Directors noted that a credible fiscal consolidation plan combined with bolder structural reforms are needed to maintain external balance over the medium term.", "Advancing multilateralism would help mitigate inward spillovers from heightened trade tensions.", "Directors generally underscored the importance of maintaining a neutral fiscal stance to support near-term growth and reflation.", "The authorities plan to implement temporary measures to alleviate the adverse impact of the scheduled consumption tax increase, accompanied by clear communication to the public.", "For the medium term, Directors saw merit in developing a well-specified fiscal framework, based on realistic assumptions, to reduce policy uncertainty and anchor a gradual consolidation path toward debt sustainability while addressing demographic challenges.", "While an independent fiscal institution could be helpful, some Directors saw scope to achieve these objectives within the existing institutional arrangements.", "Selected fiscal and debt indicators (as reported):", "Monetary policy should remain accommodative, possibly for an extended period to successfully reflate the economy, while carefully monitoring and mitigating side-effects.", "Directors stressed that effective communication and forward guidance would help reduce market volatility and guide inflation expectations.", "Directors recognized challenges facing the financial sector from demographic pressures and low interest rates.", "Progress was welcomed on implementing the 2017 FSAP recommendations, in particular the new more forward-looking supervisory framework.", "Directors highlighted the importance of enhancing risk management, financial oversight, and the macroprudential framework.", "They welcomed the authorities’ close engagement with regional financial institutions to help adapt business models to demographic trends.", "Priority areas include facilitating financial institutions’ use of Fintech and strengthening crypto-asset oversight.", "Directors welcomed the authorities’ ambitious structural reform agenda aimed at lifting potential growth.", "They stressed the importance of strong government commitment to mutually-supportive reforms, with priority given to labor market reforms to enhance labor supply including from female, older, and foreign workers.", "Recommended actions:", "Executive Directors welcomed Japan’s remarkable economic growth performance, especially in per capita terms, and the prospect of continued above-potential growth in the near term.", "Directors noted that inflation remains below target and that downside risks have risen, notably from the upcoming consumption tax rate increase and deteriorating global conditions.", "Directors commended the authorities for volunteering to participate in the Fund’s initiative to assess efforts to address supply-side of corruption in Japan’s Article IV consultation and looked forward to continued progress in enforcing foreign bribery laws.", "Real GDP growth (annual percent change): 2012: 1.5; 2013: 2.0; 2014: 0.4; 2015: 1.4; 2016: 1.0; 2017: 1.7; 2018: 1.1; 2019 Proj.: 0.9", "Output Gap (percent): -3.7, -2.2, -2.6, -2.0, -0.7, -0.3", "Unemployment rate (annual average, percent): 4.3, 4.0, 3.6, 3.1", "Public debt, gross (percent of GDP): 229.0, 232.5, 236.1, 231.3, 235.6, 237.6, 238.2, 236.6", "Non-financial corporate debt (percent of GDP): 143.1, 142.0, 143.0, 137.9, 136.9, 139.7, 146.7, 147.0", "Household debt (percent of disposable income): 98.3, 100.2, 100.8, 100.5, 101.7, 101.1, 101.0", "Current account balance (in billions of USD): 59.7, 45.9, 36.8, 136.4, 194.9, 196.1, 183.7, 196.2", "Trade balance (in billions of USD): -53.9, -90.0, -99.9, -7.4, 51.4, 44.5, 34.7, 43.0", "Exports of goods (in billions of USD): 776.0, 695.0, 699.7, 622.1, 636.3, 689.2, 750.0, 766.6", "Imports of goods (in billions of USD): 829.9, 784.9, 799.7, 629.5, 585.0, 644.8, 715.3, 723.7", "Energy imports (in billions of USD): 272.2, 257.4, 241.8, 133.8, 94.9, 117.8, 153.5, 150.9", "Total reserves minus gold (in billions of US$): 1227.2, 1237.3, 1231.0, 1207.1, 1188.4, 1232.4", "Yen/dollar rate: 79.8, 97.6, 105.9, 121.0, 108.8, 112.2, 109.8, 109.3", "Yen/euro rate: 102.6, 129.6, 140.8, 134.3, 120.4, 126.7, 130.3, 127.9", "Real effective exchange rate (ULC-based, 2010=100): 106.5, 86.3, 78.2, 75.3, 85.1, 78.3", "Real effective exchange rate (CPI-based, 2010=100): 100.6, 80.4, 75.2, 70.2, 79.6, 75.6", "Demographic indicators — Old-age dependency (percent): 39.8, 41.8, 43.5, 44.8, 46.0, 46.9, 47.8", "[https://www.imf.org/-/media/images/imf/bios/imfboard.jpg](https://www.imf.org/-/media/images/imf/bios/imfboard.jpg)", "[The Executive Board](https://www.imf.org/external/np/sec/memdir/eds.aspx)", "[November 28, 2018](https://www.imf.org/en/videos/view/5972235057001)", "[October 4, 2018](https://www.imf.org/en/videos/view/5844367327001)", "[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)" ], "alternates": { "markdown": "/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/index.md", "json": "/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/index.json", "bundleManifest": "/en/news/articles/2018/11/28/pr18442-japan-2018-article-iv-consultation/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T22:22:12.992Z" }