Japan’s Economy: Monthly Outlook (May 2023)

Economic outlook revised; Japan’s economy gains in stability with increase in positive factors

  • Keiji Kanda
  • Shotaro Kugo
  • Wakaba Kobayashi
  • Kazuma Kishikawa
  • Kanako Nakamura


◆In light of the announcement of the Jan-Mar 2023 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP at +1.5% in FY2023, and +1.2% in FY2024 (on a calendar year basis we expect +1.3% in 2023 and +1.4% in 2024). We expect Japan’s economy to continue recovering despite the economic slowdown in the global economy, with underlying support from the normalization of economic activity, a major increase in wages in the spring wage negotiations, and accommodative fiscal and monetary policies. The major downside risk factors for Japan lie in the overseas economy, such as the increasing instability of banks in the US. This will require continued vigilance regarding the direction of the US economy for the time being.

◆Japan’s Consumer Price Index, all items less fresh food (core CPI) is expected to be +2.4% in FY2023, and +1.7% in FY2024. With the highest wage increase rate in thirty years expected in the spring wage negotiations, corporate price-setting is aggressive, and the forecast has been revised upward significantly because wages and prices have begun to rise cyclically

◆The Bank of Japan is expected to maintain its current monetary policy framework throughout the period covered by this forecast. However, if the BOJ determines that the underlying inflation rate will increase toward 2%, accompanied by higher wages as the downside risks to the US economy and the results of the 2024 spring wage negotiations become known to some extent, it may decide to announce the results of its policy review and remove yield curve control of its current policy as early as the April 2024 Monetary Policy Meeting.

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