BOJ Outlook Report: Japan’s Economy to Recover Moderately Amidst Uncertainties

BOJ Outlook Report Highlights

• Moderate economic recovery expected in Japan by mid-2023
• Consumer price index likely to decelerate by mid-2023
• Risks to economic activity and prices remain high

BOJ Outlook Report Overview

Japan’s Economy to Moderately Recover

The Japanese economy is expected to moderately recover around the middle of fiscal year 2023, supported by pent-up demand, despite downward pressure from high commodity prices and slow overseas recovery. A virtuous cycle of income to spending is projected to lead to sustained growth above the potential rate, although the pace of growth may gradually decelerate toward the end of the projection period.

Japan’s CPI Growth to Decelerate

The year-on-year rate of increase in the consumer price index is expected to decelerate by the middle of fiscal year 2023 due to a decline in the pass-through effects of cost increases. However, it is projected to moderately accelerate with fluctuations thereafter, as inflation expectations and wage growth improve, along with changes in firms’ pricing and wage-setting behavior, and as the output gap narrows.

Mixed Projections for Japan’s GDP and CPI

Compared to the previous Outlook Report, the projected real GDP growth rates for fiscal years 2022 and 2023 are lower due to a lower projection for private consumption, but the projected growth rate for fiscal year 2024 remains unchanged. The projected year-on-year rates of increase in the CPI for fiscal years 2023 and 2024 are somewhat higher due to a higher projection for wages.

High Uncertainties and Risks for Japan’s Economy

There are high uncertainties and risks to Japan’s economy, including developments in overseas economic activity and prices, as well as the situation surrounding Ukraine and commodity prices. It is necessary to monitor financial and foreign exchange markets and their impact on Japan’s economic activity and prices.

Economic Risk Balance for Japan

The risks to economic activity are skewed to the downside for fiscal year 2023 but are generally balanced thereafter. Risks to prices are skewed to the upside for fiscal year 2023 but are skewed to the downside for fiscal year 2025.

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