IMF sees Japan’s economy growing 1.4% in 2023, warns of inflationary pressures

TOKYO/WASHINGTON (Reuters) -Japan’s economy is expected to expand 1.4% in 2023, faster than a 1.0% rise last year, as the removal of pandemic curbs boosts consumption, the International Monetary Fund said on Tuesday, while warning that inflationary pressures were mounting.

Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters that Japan’s ultra-loose monetary policy could remain accommodative at the moment, but it should get ready to start raising interest rates given inflationary risks and recent strong wage negotiations.

“Our advice for Japanese authorities there is that right now, monetary policy can remain accommodative, but it needs to prepare itself for the need to maybe start hiking,” Gourinchas said at news conference. He added that the IMF was encouraging Japan to “be a bit more flexible and maybe move away from the yield-curve control that it has now.”

Inflation was now above Japan’s 2% target and there was high risk that it would remain there, he said, without providing further details.

In an update to its World Economic Outlook report, the IMF cited “accommodative policies” as underpinning growth, as Japan maintains keeps interest rates low and continues big fiscal spending to cushion the blow from rising living costs.

Japan’s 2023 growth projection is roughly around the average 1.5% expansion estimated by the IMF for advanced economies.

Growth in the world’s third-largest economy is expected to slow to 1.0% in 2024 as the effect of past stimulus measures dissipate, the IMF said.

The Bank of Japan will conclude a closely-watched policy meeting on Friday, when it will issue fresh quarterly projections and debate how much progress is being made in sustainably hitting the inflation target.

Source: Investing