## Opening Remarks by First Deputy Managing Director Gita Gopinath at the Press Conference on the Conclusion of the 2024 Japan Article IV Consultation Mission

_IMF News, February 9, 2024_

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## Bibliographic details
- Published: February 9, 2024

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### Economic outlook
- Output gap closed in mid-2023, meaning demand is now aligned with the economy’s capacity.
- Projected 1.0 percent growth in 2024, up slightly from the most recent World Economic Outlook Update thanks to stronger government spending.
- Achieving sustained 2-percent inflation looks increasingly likely.
- Price increases are now broad-based across goods and services for the first time in three decades.
- Wages are growing at their fastest pace since 1995, amid a tight labor market.
- Most households and firms now expect inflation to remain above 2 percent going forward.
- Import-price effects on inflation will fade; a very strong labor market is expected to drive faster nominal wages, keeping core inflation above the two-percent target until the second half of 2025.

### Monetary policy recommendations
- Assessment: The BOJ has been appropriately cautious by keeping policy extremely accommodative, given Japan’s history of deflation and mixed signals from recent data.
- Recommendation sequence:
  - Exit from Yield Curve Control (YCC).
  - End the Quantitative and Qualitative Easing (QQE) framework.
  - Continue to rollover its maturing JGBs to avoid abrupt shifts in bond markets.
  - Then gradually raise the policy interest rate over the next few years.
- Operational guidance: Policy shifts should be gradual and well-communicated.

### Fiscal policy recommendations
- With a closed output gap and high public debt-to-GDP, fiscal policy should be meaningfully tighter.
- Long-term projection: The public debt-to-GDP ratio will increase steadily to accommodate age-related spending pressures.
- Fiscal consolidation is needed to rebuild fiscal buffers and ensure debt sustainability, underpinned by both revenue and expenditure measures.
- Revenue-side options include strengthening financial income taxation for high-income earners.
- Expenditure-side measures include limiting untargeted transfers or phasing out energy subsidies.
- Going forward, additional expenditure policies should be offset by higher sustainable revenues to pay for them.

### Financial sector assessment and recommendations
- An in-depth assessment was conducted as part of the Financial Sector Assessment Program.
- Stress test results: The financial system is broadly resilient to a range of macro-financial shocks, including a potential rise in foreign and domestic interest rates and a sharp drop in global and domestic growth.
- Identified vulnerabilities:
  - Sizable securities holdings.
  - Foreign currency exposures.
  - Signs of overheating in parts of the real estate markets.
- Policy implication: These vulnerabilities require close monitoring and underscore the need to further strengthen financial oversight and crisis preparedness frameworks.

### Structural reform priorities
- Aim: Make the Japanese economy more dynamic, more green, and more inclusive.
- Priorities include measures to empower women in the labor market.
- Specific policy examples:
  - Increased spending on childcare facilities.
  - Reforms to make working conditions more flexible.

*Opening Remarks by First Deputy Managing Director Gita Gopinath at the Press Conference on the Conclusion of the 2024 Japan Article IV Consultation Mission, Tokyo, Japan, February 9, 2024*

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## References

- [Gita Gopinath](https://www.imf.org/en/about/senior-officials/bios/shirin-hamid)
- [Japan: Staff Concluding Statement of the 2024 Article IV Mission (February 9, 2024, Tokyo, Japan)](https://www.imf.org/en/news/articles/2024/02/08/mcs020824-japan-staff-concluding-statement-of-the-2024-article-iv-mission)
- [Transcript of the Press Conference](https://www.imf.org/en/news/articles/2024/02/09/tr020924-transcript-of-press-briefing-on-japan-article-iv)
- [Press Conference on the Conclusion of the 2024 Japan Article IV Consultation Mission, February 9, 2024, Tokyo, Japan](https://www.imf.org/en/videos/view/6346548208112)
- [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)
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- [PRESS CENTER](http://presscenter.imf.org/)
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_Source: https://www.imf.org/en/news/articles/2024/02/08/sp020924-remarks-by-fdmd-japan-a4-mission-concluding-presser_