“TOKYO: “IMF: Japan Growth Forecast Cut & Consumption Optimism”, The International Monetary Fund (IMF) revised Japan’s economic growth forecast downward on Tuesday, attributing the adjustment to temporary disruptions in auto output and subdued private investment during the first quarter of the year.”
“However, the IMF provided an optimistic outlook on consumption, citing expectations that significant pay raises from this year’s ‘shunto’ spring wage negotiations will boost household incomes.”
“In Japan, the strong shunto wage settlement is expected to support a turnaround in private consumption starting in the second half,” the IMF said in an update to its World Economic Outlook report.
The IMF said it now expects Japan’s economy to expand 0.7 per cent this year, down 0.2 per centage point from its forecast in April, after an 1.9 per cent increase in 2023. It maintained its projection for the economy to grow 1.0 per cent in 2025.
Recent weakness in consumption has been cited by some analysts as a factor that could discourage the Bank of Japan (BOJ) from raising interest rates too soon from the current near-zero levels.
BOJ Governor Kazuo Ueda has voiced optimism over the outlook for consumption, saying it will likely rebound once wage hikes broaden and boost households’ purchasing power.
The BOJ will likely trim this year’s economic growth forecast in July but project inflation will stay around its 2 per cent target in the next few years, sources have told Reuters, keeping alive the chance of an interest rate hike this month.
Japan’s economy shrank an annualised 2.9 per cent in January-March due to output disruptions among some automakers and soft consumption blamed in part on rising inflation. Many analysts expect growth to have rebounded in the April-June quarter as auto output disruptions run their course.
