Japan: Consolidating growth

6/22/2017 - Report
ic_blogtagJapanCountry Risk

Country Report

Growth above potential, still low inflation

Economic activity became more stable in 2016, as private consumption showed some signs of improvement after two years of contraction and exports gained momentum in the second half. 

Supported by a temporary fiscal stimulus, improved global demand conditions, accommodative financial conditions and high corporate profit margins, economic growth is expected to accelerate to 1.3%  this year. Thus. it will remain above the potential growth rate (0.7%, Bank of Japan estimate). 

The tight labor market - the unemployment rate has fallen to its lowest level since 1994 - should eventually exert upward pressure on wages and bring about higher inflation. To date, however, the wage trend remains soft and consumer price inflation has been hovering around the zero line in the early months of 2017. The momentum towards achieving the price stability goal of 2% is not yet firm. Thus, we do not expect the BoJ to forgo its accommodative monetary policy for the time being. 

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