The International Monetary Fund (IMF) on Tuesday cut its economic growth forecast for Japan this year, citing temporary disruptions to auto production and weak private investment in the first quarter.
But the fund offered an optimistic view on consumption, citing prospects that the huge wage increases companies have offered this year will shuntะพฬ The wage negotiations in the spring will increase family incomes.
โIn Japan, the strong wage shunt is expected to trigger a turnaround in private consumption from the second half of the year,โ the IMF said in an update to its World Economic Outlook report.
The IMF now expects Japan’s economy to grow 0.7% this year, down 0.2 percentage points from its April forecast, after a 1.9% increase in 2023. The IMF maintained its forecast for economic growth of 1.0% in 2025.
Some analysts cite recent weakness in consumption as a factor that could prevent the Bank of Japan (BOJ) from raising interest rates too quickly, from their current near-zero level.
BOJ Governor Kazuo Ueda has expressed optimism about the outlook for consumption, saying it is likely to recover as wage increases pick up and household purchasing power rises.
The BOJ is likely to cut its economic growth forecast for this year in July but predicts inflation will remain around its 2% target in the coming years, sources said, leaving the possibility of a rate hike this month.
Japan’s economy shrank 2.9 percent year-on-year in January-March, amid production disruptions at some automakers and weak consumption partly due to rising inflation. Many analysts expect growth to recover in the April-June quarter as the disruptions to auto production run their course.
