{
  "title": "Transcript of Press Briefing on Japan Article IV",
  "publication": "IMF News, February 9, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/02/09/tr020924-transcript-of-press-briefing-on-japan-article-iv",
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  "summary": "Transcript of Press Briefing on Japan Article IV",
  "publishDate": "2024-02-09",
  "sections": [
    {
      "heading": "Economic outlook",
      "content": "- Output gap closed in mid-2023.\n- IMF projects 1% growth in 2024.\n- IMF reported 1.9% growth for Japan in the prior year.\n- Medium-term projection for growth in Japan: 0.4%.\n- For the first time in three decades, price increases are broad-based across goods and services.\n- Wages are growing at their fastest pace since 1995.\n- Most households and firms now expect inflation to remain above 2% going forward.\n- IMF expects core inflation to remain above the 2% target until the second half of 2025.\n- Yen depreciation of about 9% last year contributed to Japan's nominal GDP in dollars slipping below Germany."
    },
    {
      "heading": "Monetary policy (IMF assessment and advice)",
      "content": "- Unconventional monetary policies have supported recovery and raised inflation expectations but are assessed as no longer needed to achieve the inflation target.\n- IMF view: Bank of Japan (BOJ) should:\n  - Exit from yield curve control (YCC) and end the quantitative and qualitative easing (QQE) framework.\n  - Continue to roll over maturing JGBs to avoid abrupt shifts in bond markets.\n  - Gradually raise the policy interest rate over the next few years.\n  - Implement policy shifts gradually and with clear communication.\n- IMF emphasizes continued caution due to mixed incoming data and remaining downside risks to inflation.\n- IMF will monitor March wage data and subsequent data rounds to guide timing; did not specify a terminal short-term policy rate."
    },
    {
      "heading": "Fiscal policy (IMF assessment and advice)",
      "content": "- Output gap closed and public debt to GDP already very high at around 250% of GDP.\n- IMF recommends meaningfully tighter fiscal policy now.\n- Fiscal consolidation needed to rebuild fiscal buffers and ensure debt sustainability.\n- Revenue-side options include strengthening financial income taxation for high income earners.\n- Expenditure-side measures include limiting untargeted transfers or phasing out energy subsidies.\n- Additional expenditure policies should be offset by higher sustainable revenues."
    },
    {
      "heading": "Financial sector resilience and risks",
      "content": "- IMF conducted an in-depth assessment as part of the Financial Sector Assessment Program (FSAP).\n- Stress tests suggest the financial system is broadly resilient to a range of macrofinancial shocks (including rises in foreign and domestic interest rates and sharp drops in global and domestic growth).\n- Identified vulnerabilities include:\n  - Sizable securities holdings.\n  - Foreign currency exposures.\n  - Signs of overheating in parts of the real estate market.\n- IMF view: System-wide capital and liquidity buffers are strong, but vigilant monitoring and strengthened oversight and crisis preparedness frameworks are needed.\n- Direct spillovers from U.S. commercial real estate to Japanese banks assessed as limited given current exposures; larger global financial turmoil could produce substantial indirect spillovers."
    },
    {
      "heading": "Structural reforms and labor market",
      "content": "- Structural reforms recommended to raise medium-term growth and make the economy more dynamic, green, and inclusive.\n- Priority measures to increase labor market dynamism and participation:\n  - Empower women in the labor market by expanding childcare facilities (notably for children under the age of two).\n  - Reform workplace practices to allow more flexible work models (including teleworking).\n  - Move away from lifetime employment to facilitate worker reallocation and boost entrepreneurship and startups.\n  - Consider further increases in foreign workers as part of the policy mix.\n- IMF notes Japan has raised labor force participation, but much of the increase has been in non-regular employment; female leadership remains very limited."
    },
    {
      "heading": "Capital markets and investor considerations",
      "content": "- Japanese equities have reached multi-decade highs; Nikkei 225 increased by nearly 40% since January 2023.\n- Factors behind equity strength cited: strong corporate earnings, weak yen, broad-based inflation, and corporate governance reforms by Japan Exchange Group."
    },
    {
      "heading": "Selected Q&A highlights (policy timing, risks, and external factors)",
      "content": "- Timing of BOJ policy normalization:\n  - IMF supports a gradual, data-driven approach; March wage data seen as an important near-term indicator.\n  - IMF does not set a specific date or terminal rate.\n- On risks of being “behind the curve”: IMF judges the BOJ’s gradual, accommodative approach appropriate and does not see a high risk of being behind the curve based on current data.\n- On Japan’s GDP ranking and per capita GDP:\n  - Nominal GDP in dollars slipped below Germany mainly due to yen depreciation of about 9%.\n  - IMF uses purchasing power parity-based exchange rates for world growth comparisons, where Japan remains higher than Germany.\n  - Raising medium-term growth requires structural reforms described above.\n- On population decline and labor shortages:\n  - Declining population trend has already affected Japan; overall labor force has not yet fallen thanks to increased participation.\n  - Solutions include productivity-enhancing reforms, greater labor market flexibility, and consideration of increased foreign workers.\n- On global geopolitical risks (Gaza and Ukraine) and commodity markets:\n  - If conflicts remain contained regionally, spillovers to the global economy should be limited; larger escalation would raise risks and commodity price pressures.\n- On fiscal trust and JGBs:\n  - IMF does not see an immediate loss of trust in JGBs given low borrowing rates and large domestic demand for JGBs, but stresses the need for consolidation to address long-term debt dynamics and rising future spending needs (defense, green and digital transitions).\n\nTranscript of Press Briefing on Japan Article IV — February 9, 2024. IMFC Communications Department.\n\n---\n\n\n References\n\n- Gita Gopinath\n- Opening Remarks by First Deputy Managing Director Gita Gopinath at the Press Conference on the Conclusion of the 2024 Japan Article IV Consultation Mission\n- Japan: Staff Concluding Statement of the 2024 Article IV Mission\n- Germany and the IMF\n- Japan and the IMF\n- IMF Policy Advice -- A Factsheet\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/02/09/tr020924-transcript-of-press-briefing-on-japan-article-iv"
    }
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    "Published: February 9, 2024",
    "Output gap closed in mid-2023.",
    "IMF projects 1% growth in 2024.",
    "IMF reported 1.9% growth for Japan in the prior year.",
    "Medium-term projection for growth in Japan: 0.4%.",
    "For the first time in three decades, price increases are broad-based across goods and services.",
    "Wages are growing at their fastest pace since 1995.",
    "Most households and firms now expect inflation to remain above 2% going forward.",
    "IMF expects core inflation to remain above the 2% target until the second half of 2025.",
    "Yen depreciation of about 9% last year contributed to Japan's nominal GDP in dollars slipping below Germany.",
    "Unconventional monetary policies have supported recovery and raised inflation expectations but are assessed as no longer needed to achieve the inflation target.",
    "IMF view: Bank of Japan (BOJ) should:",
    "IMF emphasizes continued caution due to mixed incoming data and remaining downside risks to inflation.",
    "IMF will monitor March wage data and subsequent data rounds to guide timing; did not specify a terminal short-term policy rate.",
    "Output gap closed and public debt to GDP already very high at around 250% of GDP.",
    "IMF recommends meaningfully tighter fiscal policy now.",
    "Fiscal consolidation needed to rebuild fiscal buffers and ensure debt sustainability.",
    "Revenue-side options include strengthening financial income taxation for high income earners.",
    "Expenditure-side measures include limiting untargeted transfers or phasing out energy subsidies.",
    "Additional expenditure policies should be offset by higher sustainable revenues.",
    "IMF conducted an in-depth assessment as part of the Financial Sector Assessment Program (FSAP).",
    "Stress tests suggest the financial system is broadly resilient to a range of macrofinancial shocks (including rises in foreign and domestic interest rates and sharp drops in global and domestic growth).",
    "Identified vulnerabilities include:",
    "IMF view: System-wide capital and liquidity buffers are strong, but vigilant monitoring and strengthened oversight and crisis preparedness frameworks are needed.",
    "Direct spillovers from U.S. commercial real estate to Japanese banks assessed as limited given current exposures; larger global financial turmoil could produce substantial indirect spillovers.",
    "Structural reforms recommended to raise medium-term growth and make the economy more dynamic, green, and inclusive.",
    "Priority measures to increase labor market dynamism and participation:",
    "IMF notes Japan has raised labor force participation, but much of the increase has been in non-regular employment; female leadership remains very limited.",
    "Japanese equities have reached multi-decade highs; Nikkei 225 increased by nearly 40% since January 2023.",
    "Factors behind equity strength cited: strong corporate earnings, weak yen, broad-based inflation, and corporate governance reforms by Japan Exchange Group.",
    "Timing of BOJ policy normalization:",
    "On risks of being “behind the curve”: IMF judges the BOJ’s gradual, accommodative approach appropriate and does not see a high risk of being behind the curve based on current data.",
    "On Japan’s GDP ranking and per capita GDP:",
    "On population decline and labor shortages:",
    "On global geopolitical risks (Gaza and Ukraine) and commodity markets:",
    "On fiscal trust and JGBs:",
    "[Gita Gopinath](https://www.imf.org/en/about/senior-officials/bios/shirin-hamid)",
    "[Opening Remarks by First Deputy Managing Director Gita Gopinath at the Press Conference on the Conclusion of the 2024 Japan Article IV Consultation Mission](https://www.imf.org/en/News/Articles/2024/02/08/sp020924-remarks-by-fdmd-japan-a4-mission-concluding-presser)",
    "[Japan: Staff Concluding Statement of the 2024 Article IV Mission](https://www.imf.org/en/News/Articles/2024/02/08/mcs020824-japan-staff-concluding-statement-of-the-2024-article-iv-mission)",
    "[Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)",
    "[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)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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