April 09, 2025
Our outlook for year-end 2025
Less than 1%
Economic growth,
year over year
We expect tariffs to exert downward pressure on Japan’s economy through a slowing of growth in the U.S. and elsewhere. We expect a decline in the price competitiveness of Japanese exports within the U.S.
Around 2%
Core inflation, year over year
Steady wage growth on the back of strong corporate profits and structural labor shortages will likely support a recovery in domestic consumption and keep core inflation robust at around 2% in 2025. More important, a virtuous cycle of wages and inflation will continue to strengthen—a positive development after decades of economic and market stagnation—potentially justifying further Bank ofJapan (BoJ) rate hikes.
1.0%
Monetary policy rate
The BoJ, watchful for further progress in union labor negotiations and global trade developments, kept its policy rate on hold at 0.5% on March 19. But recent developments would appear to keep the BoJ on track to raise its policy rate. An umbrella organization representing retail, restaurant, and other industry unions at 2,200 mostly large companies said on March 13 that it had secured average raises of 5.37% for its 1.9 million workers. The raises, the first announced in the annual nationwide Shunto negotiations, were larger than expected and support growth in real incomes and consumer spending. We expect the BoJ to keep abreast of further wage negotiations before gradually raising the policy rate to 1.0% by year-end. Such a progression would nonetheless keep monetary policy accommodative.
2.4%
Unemployment rate
Japan is confronted by a structural labor shortage, which has recently been somewhat alleviated by a greater labor participation rate for women and older people, and by the addition of more foreign workers. The shortage is nonetheless likely to exert continued upward pressure on wages.
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