Japan: 2024 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan

The 2024 Article IV Consultation highlights that the Japanese economy continues to grow after the pandemic, with broad-based price increases following three decades of low inflation. Growth is expected to continue, with a pick-up in consumption later this year. Growth is projected to decelerate to 0.9 percent in 2024, owing to fading of one-off factors supporting growth in 2023, including a surge in tourism. Risks to growth and inflation are broadly balanced. For growth, downside risks include a slowdown in the global economy, deepening geo-economics fragmentation, and more volatile food and energy prices. On the domestic side, the main downside risks are weak consumption related to negative real wage growth, more acute labor shortages that could constrain activity, and a return to a zero-inflation environment. The Japanese financial system has withstood a series of shocks but confronts several challenges. Key risks to macrofinancial stability at the current juncture stem from three main sources of vulnerability: the sizable security holdings of financial institutions under mark-to-market accounting, some banks’ notable foreign currency exposures, and signs of overheating in parts of the real-estate markets.