2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan


2019 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Japan

This statement contains information that has become available since the staff report was circulated to the Executive Board. This information does not alter the thrust of the staff appraisal.

  • 1. Japan’s Cabinet Office released its revised medium- to long-term economic and fiscal projections on January 17. These projections are revised biannually, and show the medium- to long-term paths of GDP growth and the primary balance of central and local governments under two scenarios. In the “Economic Growth Achieved Case”, real GDP growth is projected to rise to around 2 percent in the early 2020s. The primary balance is projected to reach -0.5 percent of GDP in FY2025—the target year for achieving a primary surplus—and will turn positive in FY2027. In the “Baseline Case”, real GDP growth is projected to decline gradually from 1.5 percent in FY2022 to 0.8 percent in FY2029. The primary balance is projected to remain in deficit throughout the projection period (attaining -1.3 percent of GDP in FY2029).

  • 2. The Cabinet submitted the draft supplementary budget for Fiscal Year 2019 and the draft initial budget for Fiscal Year 2020 to the Diet on January 20. The initial budget amounts to ¥102.7 trillion (about 18.2 percent of GDP), while additional expenditures in the supplementary budget amount to ¥4.5 trillion (about 0.8 percent of GDP). Once approved by the Diet, these two budgets will provide financing for most of the measures listed in the December 2019 economic stimulus package. These include disaster recovery spending following Typhoons Faxai and Hagibis of September-October 2019; and measures to support private consumption (operating from September 2020 to March 2021) which utilize the Individual Number Card.

  • 3. At its Monetary Policy Meeting on January 20–21, 2020, the Bank of Japan (BOJ) kept the short-term policy interest rate at -10 basis points (bps) and a zero-percent yield target for 10-year JGBs unchanged. It made modest upward revisions to the growth outlook for FY2019 (April 2019-March 2020) and FY2020 by 20 bps to 0.8 percent and 0.9 percent, respectively, due to additional public spending from the economic stimulus package. Despite further downward revisions to its core inflation forecasts for FY2020 and FY2021 by 10 bps to 1 and 1.4 percent, respectively, the BOJ remains committed to achieving its inflation target of 2 percent. CPI headline inflation and the BOJ’s core-core inflation (excluding fresh food and energy) picked up in December 2019 to 0.8 and 0.9 percent (y/y), respectively, an increase of 0.6 and 0.2 percentage points since October.

  • 4. Japan’s trade balance turned to a deficit of ¥153 billion (about $43 billion) in December 2019, while exports remained sluggish. Exports fell by 6.3 percent (y/y), a thirteenth consecutive monthly decline, due to lingering supply-chain disruptions caused by the typhoons of October 2019, and the slowdown in growth of trading partners. Data released by the Japan National Tourist Organization on 17 January show that the number of tourist arrivals grew by 2.2 percent in 2019, partly due to the Rugby World Cup. Relative to mid-December 2019, the Japanese yen is broadly stable vis-à-vis the U.S. dollar. Since the beginning of 2020, Japanese equity markets have risen by 0.7 percent, and the ten-year government bond yield is broadly unchanged at -0.02 percent.