Japan likely to keep growing at pace above potential growth rate: BOJ

28 Apr '24

2 min read

Japan likely to keep growing at pace above potential growth rate: BOJ

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Japan's economy is likely to keep growing at a pace above its potential growth rate, with overseas economies growing moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors like accommodative financial conditions, the central bank said.
Underlying CPI inflation is expected to gradually rise.

The Japanese economy is expected to keep growing at a pace above its potential growth rate, with overseas economies growing moderately and as a virtuous cycle from income to spending gradually intensifies against the background of factors like accommodative financial conditions, according to the Bank of Japan (BOJ).

The year-on-year (YoY) rate of increase in the consumer price index (CPI, all items less fresh food) is likely to be in the range of 2.5-3 per cent for fiscal 2024-25 (FY25, which began on April 1) and then be at around 2 per cent for FY26 and FY27, the central bank said in its latest outlook for economic activity and prices.

While the effects of a pass-through to consumer prices of cost increases led by the past rise in import prices are expected to wane, the rate of increase is projected to be pushed up through FY26 by the effects of the recent rise in crude oil prices and a waning of the effects of the government's economic measures pushing down CPI inflation.

Meanwhile, underlying CPI inflation is expected to gradually rise, as the output gap is projected to improve and medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify.

In the second half of the projection period, it is likely to be at a level that is generally consistent with the price stability target.

The projected growth rate for fiscal FY26 is more or less unchanged. The projected YoY rate of increase in the CPI (all items less fresh food) for fiscal FY25 is higher, but that for FY26 is more or less unchanged.

High uncertainties surround 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, a release from the central bank said.

Fibre2Fashion News Desk (DS)

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