The new government announced in December 2012 a new policy to end decades-long deflation and raise growth. The new policy framework—“three-arrows” of Abenomics comprising
aggressive monetary easing, flexible fiscal policy, and structural reforms—provides a unique
opportunity to end decades-long deflation and sluggish growth, and reverse the rise of public
debt.
Japan's Q1 growth accelerated to 4.1%(seasonally adjusted annual rate) after two quarters of
stagnation. Exports rebounded because of a weaker yen,and the stock market rose sharply
stimulating consumption. Inflation expectations have started to increase and actual inflation
was recorded in June.
From September 2012 to mid-May 2013 the Nikkei stock index rose by about 80 percent, but temporarily dropped sharply by around 15 percent. As of end June, the yen has depreciated by about 20 percent in real effective terms since mid-2012. Ten-year bond yields have remained unchanged around 80-90 basis points since the beginning of the year, although they briefly declined to historic lows of about 45 basis points after the announcement of QQME.
The Japanese economy is expected to grow by about 2% in 2013 as a result of monetary easing,and fiscal stimulus, increased consumption and investment.
In 2014, growth is expected to moderate to 1.2 percent as a continued pick-up in private domestic demand is offset by fiscal withdrawal from the consumption tax increase from 5 to 8 percent and an unwinding of reconstruction spending.
Over the medium term, growth is expected to converge to 1 percent as a recovery in investment is offset by a slowdown in labor supply due to population aging.
The Executive Board agrees that Japan's fiscal stimulus and aggressive monetary easing have
improved in the short term growth prospects for the Japanese economy. Directors agreed, however, that the growth outlook is subject to significant risks, primarily stemming from incomplete domestic reforms and a weaker external environment, and that sustained implementation of the authorities’ reform program is the best way to minimize these risks.
But because of the dismal fiscal situation, Japan will have this year a gross debt of 246.9 % of
GDP. Japan's Government should implement a credible fiscal plan in the medium term, to avoid politicaal uncertainties and avoid fiscal risks.
Bringing down public debt as a share of GDP will require a significant adjustment over the next decade. In this regard, the IMF board supports Government plans to double the consumption tax rate by 2015, although a few Directors expressed concern over the possible adverse impact on growth. Directors also underscored that additional revenue and expenditure measures will be needed beyond 2015.
aggressive monetary easing, flexible fiscal policy, and structural reforms—provides a unique
opportunity to end decades-long deflation and sluggish growth, and reverse the rise of public
debt.
Japan's Q1 growth accelerated to 4.1%(seasonally adjusted annual rate) after two quarters of
stagnation. Exports rebounded because of a weaker yen,and the stock market rose sharply
stimulating consumption. Inflation expectations have started to increase and actual inflation
was recorded in June.
From September 2012 to mid-May 2013 the Nikkei stock index rose by about 80 percent, but temporarily dropped sharply by around 15 percent. As of end June, the yen has depreciated by about 20 percent in real effective terms since mid-2012. Ten-year bond yields have remained unchanged around 80-90 basis points since the beginning of the year, although they briefly declined to historic lows of about 45 basis points after the announcement of QQME.
The Japanese economy is expected to grow by about 2% in 2013 as a result of monetary easing,and fiscal stimulus, increased consumption and investment.
In 2014, growth is expected to moderate to 1.2 percent as a continued pick-up in private domestic demand is offset by fiscal withdrawal from the consumption tax increase from 5 to 8 percent and an unwinding of reconstruction spending.
Over the medium term, growth is expected to converge to 1 percent as a recovery in investment is offset by a slowdown in labor supply due to population aging.
The Executive Board agrees that Japan's fiscal stimulus and aggressive monetary easing have
improved in the short term growth prospects for the Japanese economy. Directors agreed, however, that the growth outlook is subject to significant risks, primarily stemming from incomplete domestic reforms and a weaker external environment, and that sustained implementation of the authorities’ reform program is the best way to minimize these risks.
But because of the dismal fiscal situation, Japan will have this year a gross debt of 246.9 % of
GDP. Japan's Government should implement a credible fiscal plan in the medium term, to avoid politicaal uncertainties and avoid fiscal risks.
Bringing down public debt as a share of GDP will require a significant adjustment over the next decade. In this regard, the IMF board supports Government plans to double the consumption tax rate by 2015, although a few Directors expressed concern over the possible adverse impact on growth. Directors also underscored that additional revenue and expenditure measures will be needed beyond 2015.
Source: Executive Board of the International Monetary Fund (IMF) Article IV consultation discussions with Japan
