Japan

The 2025 Article IV Consultation highlights that after three decades of near-zero inflation, signs are growing that Japan’s economy is reaching a new equilibrium with inflation sustained at the Bank of Japan’s two percent headline inflation target. However, Japan continues to face challenges, including from its aging population and high public debt. Growth is expected to accelerate in 2025 and converge to its potential of 0.5 percent in the medium term. Policy priorities are to rebuild fiscal buffers, re-anchor inflation expectations, and advance structural reforms to support potential growth. Public debt is high and is expected to rise from 2030, driven by a higher interest bill and expenditure pressures related to spending on health and long-term care for an aging population. The monetary policy stance is appropriately accommodative and should help ensure inflation expectations rise sustainably to the 2-percent inflation target. Advancing structural reforms, including improving labor mobility, would help improve Japan’s allocative efficiency and boost productivity.