Press Conference on the Concluding Statement of the 2023 Article IV Mission to Japan
IMF News, January 26, 2023
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- Published: January 26, 2023
Outlook and growth projections
- Japan is expected to grow at 1.8 percent in 2023, a slight upgrade from 1.6 percent in the October World Economic Outlook.
- Core inflation has accelerated, recording levels not seen in four decades at 4 percent.
- The output gap is projected to close in 2023.
- Consumption of services will be supported by savings accumulated during the pandemic.
- Exports will rise as order backlogs have risen, supply side constraints eased, and high corporate profits from a depreciated yen and delays in implementing previous projects will support business investment.
- Global growth is expected to bottom out in 2023 and improve into 2024; China’s reopening and stronger-than-expected growth in the US and Europe contributed to an upgrade for Japan.
Inflation outlook and monetary policy
- Primary inflation objective reiterated: reach and durably meet a 2 percent inflation target.
- Current assessment: inflation peaked recently (4 percent) but is not yet judged durably at the 2 percent target without substantial acceleration in wage growth.
- Projection: inflation expected to peak in Q1 2023 and then decline, and by the end of 2024 to be slightly below the inflation target.
- Policy stance recommendations:
- An overall accommodative monetary policy stance remains appropriate.
- Shorter-term policy rates should remain unchanged.
- More flexibility in long-term yields would help better manage risks given increased uncertainty about inflation and could lead to a smoother transition to a neutral monetary policy stance once there is stronger evidence that the inflation target will be durably met.
- Changes in monetary policy settings should be well communicated.
Fiscal outlook and recommendations
- The primary fiscal deficit will stay elevated in 2023 following the adoption of the October 2022 fiscal package.
- Fiscal policy guidance:
- Amid the recovery, rising inflation, tighter labor markets and a closing output gap, fiscal support should be withdrawn more quickly and new measures limited and targeted only to vulnerable households.
- Any additional spending measures should be targeted and come hand in hand with revenue-raising measures.
- Over the medium-term, growth-friendly and credible fiscal consolidation is necessary to put public debt on a downward path and to rebuild fiscal buffers.
- Financial support measures should be limited to viable firms.
- Specific fiscal context and figures:
- Japan has a very high level of public debt, "250% of GDP roughly" (as stated by the Mission Chief).
- On defense and other spending increases:
- Any increase in expenditures should be met with an increase in revenues.
Structural and medium-term policy priorities
- Labor market and fiscal reforms are warranted to:
- Raise potential growth.
- Reduce gender inequalities.
- Offset the drag from fiscal consolidation.
- Promote green and digital investment to:
- Help achieve climate targets.
- Reap the benefits of the digital economy.
- Investment priorities noted: important investment needed for the green transformation and digital transformation.
Risks and uncertainties
- Inflation outlook carries significant uncertainty with both upside and downside risks.
- Japan faces unique two-sided risks to inflation; stronger wage growth is critical to sustain a 2 percent inflation rate.
- Global slowdown risks: slower global demand reduces external demand for export-reliant countries; however, easing energy prices and milder-than-feared winter in Europe have mitigated some risks.
Press Conference, January 26, 2023 — IMF Communications Department; Participants: Gita Gopinath, First Deputy Managing Director; Ranil Salgado, Mission Chief to Japan.