The International Monetary Fund (IMF) has revised its economic growth forecast for Japan in 2024. The IMF cut its projection for Japan’s economic growth this year, citing temporary disruptions in automobile production and weaker private investment in the first quarter.
Optimistic outlook on Japanese consumption
However, the IMF has an optimistic outlook on Japanese consumption, anticipating that the substantial wage increases agreed upon in this year’s “shunto” spring wage negotiations will boost household incomes. As the IMF stated in an update to its World Economic Outlook report, “In Japan, the strong shunto wage settlement is expected to support a turnaround in private consumption starting in the second half.”
Revised growth projections
The IMF now expects Japan’s economy to expand by 0.7 percent in 2024, a 0.2 percentage point decrease from its April forecast. The fund maintained its projection for the Japanese economy to grow 1.0 percent in 2025, following an increase of 1.9 percent in 2023.
Implications for BOJ policy
Some analysts have pointed to the recent weakness in consumption as a factor that could discourage the Bank of Japan (BOJ) from raising interest rates too quickly from the current near-zero levels. BOJ Governor Kazuo Ueda has expressed optimism about the outlook for consumption, stating that it is likely to rebound once wage hikes become more widespread and boost households’ purchasing power.
BOJ’s economic outlook
According to sources, the BOJ will likely trim its forecast for Japan’s economic growth in 2024 in its July report, but project that inflation will remain around its 2 percent target in the next few years. This could keep the possibility of an interest rate hike this month alive.
Recent economic performance
Japan’s economy contracted at an annualized rate of 2.9 percent in the January-March quarter, due to output disruptions among some automakers and soft consumption, which was partly blamed on rising inflation. However, many analysts expect growth to have rebounded in the April-June quarter as the auto production issues were resolved.
For more economy news, click here.
