Deflation a real threat for Japan
THE International Monetary Fund lifted its outlook for Japan’s economy this year and in 2017, pointing to huge government stimulus spending, but warned the country’s longer-term prospects were bleak.
The IMF upgraded its growth projections for the world’s number-three economy to 0.5 percent in 2016 and 0.6pc next year, up from a July forecast of 0.3pc and 0.1pc, respectively.
But the upgrade was largely due to an expected shot in the arm from a whopping 28 trillion yen (US$273 billion) government spending package announced in August, as well as a decision to delay a consumption tax hike, the Fund said.
“Japan’s medium-term prospects remain weak, primarily reflecting a shrinking population,” the IMF said in its latest World Economic Outlook.
“The probability of deflation has increased in Japan owing to weak momentum in consumer prices and the recent appreciation of the yen.”
Officials are under intense pressure to deliver a boost to the economy as economists increasingly write off Prime Minister Shinzo Abe’s spendfor-growth policies.
Weakness in economies overseas and a strong yen, which is bad for Japan’s exporters, are weighing down growth, the Fund said.
The Bank of Japan’s huge monetary easing will help prop up growth for now, but would do little to fix broader problems, it added.
Among them are low birthrates and a shrinking labour force, while a soaring population of old people squeezes the public purse. Wages are stagnant, spending is faltering, and consumer prices are way below the central bank’s 2pc inflation target.
The IMF also called for Tokyo to rein in a national debt that is now more than two times the size of the economy – one of the world’s biggest debt loads. –