The IMF has found external risks for Japan

The pace of Japan’s economic recovery after the pandemic and the impact of the consequences of the Russian military operation in Ukraine, largely due to the growth of domestic demand, remains high, but may slow down due to increasing external risks, follows from the IMF’s annual country monitoring.

In 2023, analysts of the fund expect Japan’s GDP growth to be 1.3% after 1.1% in 2022. Thanks to the “surplus” savings left by the citizens of this country after the pandemic, domestic demand continues to recover. At the same time, inflation growth in Japan is associated to a greater extent with external factors, including the consequences of rising prices for raw materials. Until the inflation rate consolidates around the 2% mark, it is not worth abandoning Japan’s ongoing loose monetary policy, the IMF believes. At the same time, they advise making the yields of long-term government securities more flexible – this will help the Japanese Central Bank to more effectively manage inflation risks and eliminate problems associated with a long-term soft policy. In December 2022, the Central Bank of Japan expanded the boundaries of the corridor in which the yield of ten-year government bonds can fluctuate from plus/minus 0.25% to plus/minus 0.5%.

Japan’s current account surplus, after shrinking to 2.1% of GDP in 2022, will recover in 2023, the IMF expects, to 2.9% due to inbound tourism. The growth of tourist flow to the country is accelerating every month after the removal of most coronavirus restrictions last fall – its pace is already several times higher than expected.

As long as internal risks in the country are balanced, external risks are increasing, the report notes. The optimistic forecasts of international organizations regarding the Japanese economy were often explained by the limited impact on the country’s economy of events affecting most major economies (in particular, the Russian military operation in Ukraine – see “Kommersant-Online” of January 26). However, it is their deferred consequences, according to the IMF, that can slow down economic growth in the country. In addition to volatility in commodity prices, analysts cite increased fragmentation of the global economy and its ongoing slowdown among serious external risks (for more details on these factors, see “Kommersant” dated March 29).

Christina Borovikova