Japan’s Economy: Monthly Outlook (Aug 2023)

Economic outlook revised; high growth seen in FY2023, but major slowdown expected in FY2024

  • Keiji Kanda
  • Munehisa Tamura
  • Shotaro Kugo
  • Kazuma Kishikawa
  • Kanako Nakamura


◆In light of the announcement of the Apr-Jun 2023 GDP 1st preliminary results, we have revised our economic outlook. We now see growth in Japan’s real GDP according to our main scenario at +2.1% in FY2023, and +0.8% in FY2024 (on a calendar year basis we expect +2.2% in 2023 and +0.9% in 2024).

◆We expect Japan’s economy to continue recovering despite price highs, with economic normalization and accelerated wage hikes, and accommodative fiscal and monetary policies providing support. Recently, recovery production of motor vehicles went into full gear. Inbound consumption, which has been rapidly recovering, has the full-fledged recovery in the number of visitors from China in its sights with the lifting of restrictions on group tours. Meanwhile, the weak yen of FY2022, which was labeled as “bad yen depreciation” due to the delay in normalization of economic activity, has turned into “good yen depreciation” in FY2023.

◆On the other hand, positive factors are scarce in FY2024. The normalization of economic activity is expected to run its course and the reduction in trading losses is expected to settle down. The prospect of Europe and the US entering a phase of interest rate cuts and a pickup in the silicon cycle could be a boost to the economy, but caution is needed regarding downside risks in overseas economies. Also, a change in the direction of monetary policy in Japan and the US could cause the yen to strengthen.

◆Our main scenario assumes that underlying inflation will not reach 2% during the forecast period and that the current framework of monetary easing measures will be maintained. However, if wage pressures increase further and the pace of underlying inflation increases faster than expected, the Bank of Japan may decide to eliminate its yield curve control (YCC) in the first half of FY2024.

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