IMF projects Japan’s economic growth to continue, with a noticeable increase in consumption anticipated later this year. According to a report, Japan’s growth rate is expected to decelerate to 0.9% in 2024, largely due to the fading impact of one-off factors that boosted growth in 2023.
The report highlights that consumption will pick up in the latter half of 2024 and into 2025, driven by rising nominal wages following a strong Shunto settlement in 2024 and a decrease in headline inflation that will boost real wages.
IMF foresees core inflation gradually declining as the impact of higher import prices diminishes. However, core inflation is expected to remain above BoJ’s 2% target until the second half of 2025.
In light of these developments, IMF suggests that further increases in BoJ’s short-term policy rate should “proceed at a gradual pace” and be “datadependent”, considering the balanced risks to inflation and the mixed signals from recent economic data.
IMF emphasizes the importance of Japan’s adherence to a “flexible exchange rate regime”, which will play a crucial role in absorbing economic shocks and supporting the central bank’s focus on maintaining price stability.
