The International Monetary Fund raised its forecasts for Japan’s growth and price gains, projecting that inflation in the world’s third largest economy will run much hotter than the Bank of Japan’s target over the next year.
(Bloomberg) — The International Monetary Fund raised its forecasts for Japan’s growth and price gains, projecting that inflation in the world’s third largest economy will run much hotter than the Bank of Japan’s target over the next year.
The economy is forecast to grow 2% this year, an upward revision of 0.6 percentage point from July, thanks to pent-up consumption, a surge in inbound tourism and a rebound in auto exports, according to the World Economic Outlook that the IMF released on Tuesday. The IMF also sees Japan’s consumer prices rising by 3.2% in 2023 and 2.9% in 2024, compared with 2.7% and 2.2%, respectively, forecast in April.
Those projections lag behind 2023 inflation estimates for some of Japan’s peers — 5.6% in the euro area, and 4.1% in the US — but sticky inflation in Japan continues to feed expectations that its central bank may move toward an exit from its aggressive monetary easing program.
The BOJ is set to meet later this month with analysts largely expecting it to raise its inflation forecasts. Kyodo News reported Tuesday without attribution that the BOJ may raise its price growth outlook for this fiscal year to near 3% from the 2.5% it announced in July.
Currently, the BOJ expects inflation to peak this fiscal year and fall back below its 2% goal in the following years. The price projection anchors the bank’s stance that amid high uncertainties it will need to keep up its monetary easing with greater flexibility to achieve its inflation target.
By one measure Japan’s economy is seen outperforming: The Fund expects Japan’s per capita gross domestic product to rise by 2.4% this year, the fastest pace among Group-of-Seven nations, with the US next at 1.6%. It expects Japan to lead the G-7 in that category again in 2024, albeit at a slower clip.
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