Japan Economic Forecast

GDP is projected to have grown 1.4% in Q1 2023 in seasonally-adjusted annualized terms. This growth figure would be higher than in the Euro area (0.4%) and in the U.S. (1.1%). According to the Bank of Japan, the output gap remained narrowly negative at the end of last year, suggesting that the economy likely benefitted from some catch-up growth in Q1. In particular, investment likely rebounded and consumer spending likely accelerated compared to the prior quarter. Relative to Q4, new machinery orders were up 4.7% in January–February, while both consumer confidence and the services PMI averaged higher over Q1 as a whole. Less positively, real merchandise exports were down 3.1% in Q1 compared to Q4, according to an estimate by Nomura, suggesting a weak external sector.

Inflation fell to 3.2% in March (February: 3.3%), while core inflation fell to 3.1% (February: 3.2%). Our panelists see inflation falling below the BoJ’s 2.0% target by Q4 2023, as last year’s inflation spike was largely caused by cost-push factors. That said, recent higher-than-expected wage growth poses an upside risk.