Japan's economy is likely to continue recovering moderately now, supported by factors like the materialisation of pent-up demand, though it is expected to be under downward pressure stemming from a slowdown in the pace of recovery in overseas economies, according to the country’s central bank.

Thereafter, as a virtuous cycle from income to spending gradually intensifies, the country’s economy is projected to continue growing at a pace above its potential growth rate, the Bank of Japan (BOJ) said in its January ‘Outlook for Economic Activity and Prices’.

The year-on-year (YoY) rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be above 2 per cent across fiscal 2023-24 due to factors like the effects, albeit waning, of a pass-through to consumer prices of cost increases led by the past rise in import prices and a waning of the effects of the government's economic measures pushing down CPI inflation of the previous year.

As for fiscal 2024-25, the rate of increase is projected to decelerate owing to dissipation of these factors, the central bank document said.

Meanwhile, toward the end of the projection period, underlying CPI inflation is likely to increase gradually toward achieving the price stability target, as the output gap turns positive and as medium- to long-term inflation expectations and wage growth rise, it noted.

The likelihood of realising this outlook has continued to gradually rise, although there remain high uncertainties over future developments.

There are, however, extremely high uncertainties surrounding Japan's economic activity and prices, including developments in overseas economic activity and prices, developments in commodity prices, and domestic firms' wage- and price-setting behaviour, the report observed.

Risks to both economic activity and prices are generally balanced.

Fibre2Fashion News Desk (DS)

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