IMF cuts Japan’s growth forecast, upbeat on consumption prospects

THE International Monetary Fund (IMF) on Tuesday (Jul 16) cut Japan’s economic growth forecast for this year, citing temporary auto output disruptions and weak private investment in the first quarter.

But the fund offered an optimistic view on consumption due to prospects that the bumper pay hikes offered by firms in this year’s “shunto” spring wage negotiations will lift household incomes.

“In Japan, the strong shunto wage settlement is expected to support a turnaround in private consumption starting in the second half,” the IMF said in an update to its World Economic Outlook report.

The IMF said it now expects Japan’s economy to expand 0.7 per cent this year, down 0.2 percentage point from its forecast in April, after a 1.9 per cent increase in 2023. It maintained its projection for the economy to grow 1.0 per cent in 2025.

Recent weakness in consumption has been cited by some analysts as a factor that could discourage the Bank of Japan (BOJ) from raising interest rates too soon from the current near-zero levels.

BOJ governor Kazuo Ueda has voiced optimism over the outlook for consumption, saying it will likely rebound once wage hikes broaden and boost households’ purchasing power.

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The BOJ will likely trim this year’s economic growth forecast in July but project inflation will stay around its 2 per cent target in the next few years, sources have said, keeping alive the chance of an interest rate hike this month.

Japan’s economy shrank an annualised 2.9 per cent in January to March due to output disruptions among some automakers and soft consumption blamed in part on rising inflation. Many analysts expect growth to have rebounded in the April to June quarter as auto output disruptions run their course. REUTERS