Japan's Economic Outlook: Wage Growth Fuels 2025 Rebound

The IMF has adjusted its economic growth forecast for Japan, lowering this year's estimate while projecting a rebound in 2025 driven by rising real wages and consumption. Despite challenges from supply disruptions and a fading tourism boost, steady wage hikes are expected to support household purchasing power.

The International Monetary Fund (IMF) has revised its economic growth forecast for Japan, reducing the estimate for this year but anticipating a rebound by 2025. The projected recovery is expected to be fueled by rising real wages, which will underpin consumer spending.

The IMF's optimistic view on consumption aligns with the Bank of Japan's (BOJ) assessment, suggesting that ongoing wage increases will enhance household purchasing power. This is anticipated to make the economy resilient to further interest rate hikes. According to the IMF's October World Economic Outlook (WEO) report, Japan's economic growth is predicted to decelerate to 0.3% this year, down from 1.7% in 2023. This slowdown is attributed to automotive supply disruptions and the diminishing effect of a tourism surge.

The IMF also forecasts a 1.1% expansion in 2025, driven by strengthened private consumption due to real wage growth. The projections assume the BOJ will follow a steady monetary policy. The BOJ ended negative interest rates in March, raising the short-term policy rate to 0.25% in July, reflecting progress towards a 2% inflation target. The BOJ plans to update projections in its upcoming policy meeting.

(With inputs from agencies.)