Kavan Choksi Provides a General Insight Into the Economic Outlook of Japan

Kavan Choksi Provides a General Insight Into the Economic Outlook of Japan

A record 31.9 million foreign visitors had visited Japan in 2019 before the country shut its borders in response to the covid-19.  In the October of 2022, Japan again welcomed the return of mass tourism after having two-and-a-half years of some of the most stringent pandemic travel restrictions in the world. Domestic tourism in Japan has certainly rebounded, and an increasing number of foreign visitors are entering the country than at any time since the pandemic. Kavan Choksi underlines that the policymakers in the nation are hoping that a growth in the domestic consumption post-pandemic would drive up wages and help the households of Japan to meet the rising expenses of food and fuel.

Kavan Choksi offers a brief economic outlook of Japan

The economy of Japan did contract a bit in Q3 2022, and raised concerns that the post-pandemic recovery that had just started in the country was coming to an end. However, this contraction was majorly due to a drop in the net exports, which barely is an indicator of the domestic economy of any nation. Moreover, the strength of import growth is a sign that domestic demand in the nation is relatively strong.

Looking ahead, the real GDP growth in Japan is likely to return to positive territory, as a full unwinding of pandemic-related restrictions has ultimately led to a pent-up demand for consumer spending. However, it is also vital to note that high inflation is eroding the household purchasing power in the country pretty fast. But even as the pent-up demand fades and consumers get affected by weak inflation-adjusted wages, the economy is expected to grow modestly in 2023.

Kavan Choksi further mentions that on the policy front, the economic conditions in Japan are only becoming tighter. The Bank of Japan (BoJ) has essentially allowed certain government bonds to trade at high yields. The central bank, however, is pretty likely to keep its policy accommodative enough. The strong food and energy prices are some of the biggest reasons for above-target inflation, which provides the central bank with more time to keep their interest low. Moreover, in case a global slowdown takes hold, there would be a probability that the yen shall appreciate, thereby creating disinflationary pressures. Meanwhile, fiscal policy would get tighter as policymakers look to fund their defense policies with the assistance of tax hikes.

The Bank of Japan maintained its loose monetary policy stance in the face of higher inflation across the planet. In the December of 2022, however, the central bank did widen the band of its yield curve control (YCC) policy. Earlier the bank had targeted the ten year Japanese government bond (JGB) yield to be between –0.25% and +0.25%. However, now the yield shall be allowed to float 25 basis points higher or lower. The ten year bond yield was facing an upward pressure even before the announcement of the central bank. The macroeconomic effects of the policy changes in Japan have also been observed through the exchange-rate channel. The Japanese yen already had managed to appreciate a bit against the US dollar in the weeks leading to the decision of the Bank of Japan.

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