## Transcript of Press Briefing on Japan Article IV

_IMF News, February 7, 2025_

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## Bibliographic details
- Published: February 7, 2025

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### Economic outlook
- Projected growth to accelerate to 1 .1 percent in 2025.
- Growth in per capita terms of 1 .6 percent (reflecting the declining population).
- Pickup in 2025 driven by private consumption as wages are expected to grow faster than inflation and boost household purchasing power.
- Output gap remains closed; demand broadly aligned with the economy's capacity.
- Inflation has been running about the central bank’s target for more than two years and is expected to converge to 2 percent by the end of 2025 as global food and oil prices moderate.
- Tight labor market expected to keep wages growing in the medium term, supporting sustained inflation at the Bank of Japan's 2-percent target.
- Risks to growth are tilted to the downside:
  - External risks: slowdown in the global economy, increasing trade restrictions, more volatile commodity prices.
  - Domestic risk: weak consumption if wages continue to be outpaced by inflation.

### Fiscal policy: findings and recommendations
- Inflationary environment is helping Japan's fiscal performance by boosting tax revenues, contributing to lower-than-expected deficit and debt levels relative to the last Article IV.
- Japan's debt-to-GDP ratio remains high, limiting fiscal space to respond to future shocks (e.g., natural disasters).
- Public debt-to-GDP ratio expected to increase steadily in a few years due to rising interest payments and spending on health and long-term care for an aging population.
- Policy recommendations:
  - Fiscal consolidation is needed to rebuild fiscal buffers and ensure debt sustainability.
  - Adopt a clear plan that includes both revenue measures and expenditure measures while making fiscal policy more growth friendly.
  - In the short term, consider phasing out energy subsidies and offsetting new spending commitments with higher revenues or savings elsewhere in the budget.

### Fiscal outlook statistics (IMF assessment)
- IMF calendar-based measure: general government primary deficit predicted to increase slightly from 2 .1 percent in 2024 to 2 .2 percent in 2025 (based on the budget sent to the Diet).
- Warning: from 2030 onwards, interest costs and aging-related expenses will push Japanese debt-to-GDP on an increasing path absent consolidation.

### Monetary policy: assessment and guidance
- Since February last year, the Bank of Japan has ended yield curve control, quantitative and qualitative easing, and negative interest rate policies.
- Under its simplified framework, the Bank has delivered two hikes to its policy rate, bringing it to its highest level since 2007.
- The Bank is reducing the pace of government bond purchases, gradually shrinking its balance sheet.
- IMF view:
  - Normalization has gone smoothly, reflecting good timing, communication, and a gradual but firm approach.
  - Underlying inflation (including services prices and wages) still needs support for monetary policy to sustainably converge to the 2-percent target.
  - IMF supports the Bank of Japan's recent policy decision and its data dependent and flexible approach.
  - Accommodation should continue to be withdrawn gradually if the economy evolves in line with the baseline forecast, reaching a neutral level by the end of 2027.
  - Given elevated uncertainty, the Bank should maintain a data dependent approach and clear communications to anchor market expectations.
- Financial sector: handling rising interest rates well, supported by strong capital and liquidity buffers; systemic risks have risen slightly since the last Article IV.

### Labor market, aging, and technology
- Aging and shrinking workforce contributing to labor shortages in many sectors.
- Adoption of new technologies like artificial intelligence can alleviate some labor shortages by enhancing workers' productivity.
- Policy recommendation: ensure workers of all ages receive training to fully benefit from new technologies.

### Trade, tariffs, and external spillovers
- IMF is closely tracking recent trade policy announcements, pauses, tariffs, and retaliatory measures.
- Spillover impacts depend on:
  - Duration of measures.
  - Types of country responses.
  - Categories of goods affected.
- Specific channels:
  - Higher barriers and cost pressure in major trading partners could spill over to Japan, affecting exports and growth.
  - Example: 2024 weaker growth partly reflected a decline in exports to China.
- Policy advice: countries should work together to resolve disagreements and preserve an enabling environment for international trade.

### Exchange rate and inflation pass-through
- IMF supports Japan maintaining flexible exchange rates.
- Effects of yen depreciation:
  - Exporting firms earn larger profits, which can support investment.
  - Weak yen encourages tourism, benefiting the economy.
  - Some imported goods become more expensive; overall pass-through to inflation assessed to be quite mild, though certain categories and income-constrained households may feel larger effects.

### Q&A highlights (selected)
- Inflation composition:
  - Services inflation remains below 2 percent, supporting the case for continued accommodative posture while monitoring wages and services prices.
  - Nearly three years of inflation above target after three decades of near-zero inflation suggests promising signs of a durable shift toward the 2-percent target, but uncertainty remains.
- Global monetary divergence:
  - Bank of Japan's large steps (ending yield curve control, moving out of negative rates, quantitative tightening) have been managed smoothly.
  - Clear communication and data dependence help maintain orderly market conditions amid diverging central bank paths.
- Fiscal consolidation urgency:
  - IMF emphasizes starting consolidation now rather than delaying, with a clear medium-term fiscal framework to ensure sustainability and build buffers for shocks.

*IMF Communications Department — Transcript of Press Briefing, February 7, 2025*

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## References

- [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 2025 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 2025 Article IV Mission](https://www.imf.org/en/News/Articles/2025/02/07/mcs-020725-japan-staff-concluding-statement-of-the-2025-article-iv-mission)
- [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm)
- [Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)
- [Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/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/)
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_Source: https://www.imf.org/en/news/articles/2025/02/07/tr020725-transcript-of-press-briefing-on-japan-article-iv_