Japan Economic Forecast

Japan Economic Outlook

May 31, 2022

As expected, preliminary data showed the economy contracted in Q1. Record Covid-19 case numbers led the government to introduce quasi-state-of-emergency measures, which along with rising inflation caused private consumption to fall. In Q2, a recovery is under way. Its driving force is private consumption: Most Covid-19 restrictions were scrapped in late March, more than offsetting the drag from higher inflation. Consumer confidence and the services PMI have risen in the quarter so far. Further reopening will boost private spending even more; some foreign tourists will be permitted entry from June. This said, the external sector appears to be dragging on activity, with export growth and the manufacturing PMI sliding in the quarter so far, due to supply bottlenecks and a slowing global economy due to war in Ukraine, Covid-19 lockdowns in China, and higher global inflation and interest rates.

Japan Economic Growth

GDP growth should pick up this year thanks to strong domestic demand. Looser Covid-19 restrictions will boost private consumption, while investment should recover. That said, our panelists project that the economy will remain below pre-pandemic levels at the end of the year. A weaker external sector will drag on momentum. FocusEconomics panelists see the economy expanding 2.0% in 2022, which is down 0.2 percentage points from last month’s forecast, and 1.8% in 2023.

Japan Economy Data

2015 2016 2017 2018 2019
Population (million)127127127126126
GDP per capita (USD)34,51438,97738,13039,28640,365
GDP (USD bn)4,3834,9494,8334,9695,094
Economic Growth (GDP, annual variation in %)1.20.52.20.30.7
Domestic Demand (annual variation in %)0.8-0.11.60.30.8
Consumption (annual variation in %)-0.2-0.31.30.00.1
Investment (annual variation in %)1.6-0.33.00.61.3
Exports (G&S, annual variation in %)2.91.76.83.5-1.6
Imports (G&S, annual variation in %)0.8-1.63.43.7-0.7
Industrial Production (annual variation in %)-1.10.03.11.1-3.0
Retail Sales (annual variation in %)-0.4-0.61.91.70.1
Unemployment Rate3.43.12.82.42.4
Fiscal Balance (% of GDP)-3.8-3.7-3.1-2.4-2.8
Public Debt (% of GDP)231236234236237
Money (annual variation in %)3.13.93.62.42.7
Inflation Rate (CPI, annual variation in %, eop)0.10.31.10.30.8
Inflation Rate (CPI, annual variation in %)0.8-0.10.51.00.5
Inflation (PPI, annual variation in %)-2.3-3.52.32.60.2
Policy Interest Rate (%)0.10-0.10-0.10-0.10-0.10
Stock Market (annual variation in %)9.10.419.1-12.118.2
Exchange Rate (vs USD)120.3116.9112.7109.6108.6
Exchange Rate (vs USD, aop)121.1108.8112.2110.5109.0
Current Account (% of GDP)3.14.04.23.63.6
Current Account Balance (USD bn)136197203177184
Trade Balance (USD billion)-7.748.344.013.22.1

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Value Change Date
Bond Yield-0.02-4.41 %Dec 30
Exchange Rate108.7-0.35 %Jan 01

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