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Japan's Medium-term Economic Outlook - August 2014 -

New issues impacting Japan’s growth potential

Tomoya Kondo

Mikio Mizobata

Shunsuke Kobayashi

Miku Ishibashi

Keiji Kanda


We predict that Japan’s economy will grow an annualized 1.5% in real terms over the next 10 years (2.3% nominal). Growth of 1.3% in the first half will accelerate to 1.6% in the second half. The main factor dragging down economic growth will be the impact of the consumption tax hike on personal consumption.

Wages will begin to rise as the supply-demand balance for labor tightens. However, increasing global competition will be a structural factor suppressing the growth of wages, and it is highly probable that the hollowing out of the domestic industry will progress further.

Achieving the stable 2% inflation target will prove be very difficult. During our forecast period, we believe the Bank of Japan will continue to maintain its accommodative monetary policy. With the easing extending over the long-term, the BOJ will find it difficult to execute an exit strategy.

Outlook for foreign exchange rates over the next 10 years. In the short to medium-term, the yen is likely to remain weak from the widening spread of interest rates between Japan and the US. In the long-term, however, the yen is likely to strengthen as per purchasing power parity.

Abe administration’s improves at B+. While significant progress has been made in agriculture-related reforms and in the expansion of mixed medical treatments, issues still remain in the area of employment. To lift Japan’s potential growth rate, further growth strategies are needed regarding employment and human resources.

In the growth strategies, hopes are being placed on the advancement of women and the use of foreign workers as new sources of labor. Even so, the elimination of the M-shaped curve of the labor force participation rate of women has only just begun. Employment practices require reform from top to bottom, such as the disparity in wages between men and women and the issues associated with regular and non-regular employment.

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