Japanese Government Raises Next Year’s Real GDP Growth Forecast From 1.1% to 1.5%

The Japanese government raised its 2019 real GDP forecast from 1.1% to 1.5%.

According to the Nihon Keizai (Nikkei) Shimbun, the Japanese government announced on the 22nd at a cabinet meeting that the real GDP for fiscal year 2023 (April 2023 to March 2024) would be 558 trillion yen (approximately 5395 trillion won), with fiscal year 2022 expected to increase by 1.5%. This is a 0.4 percentage point increase over the 1.1% increase rate proposed in July, and it exceeds the fiscal 2018 record high of 554 trillion yen. It exceeds the 550 trillion yen budgeted for the 2019 fiscal year just prior to the Corona 19 pandemic.

This is a result of expectations that domestic demand will recover as a result of the end of the Corona 19 pandemic and the effects of the ‘comprehensive economic measures’. Personal consumption, which accounts for more than half of GDP, is expected to rise 2.2%. The promotion of green and digital investment included in the comprehensive economic measures is expected to increase corporate facility investment by 5%. Inflation is also expected to rise by only 1.7 percent as a result of the government’s support for household electricity and gas bills.

Domestic demand is expected to rebound by 1.6 percentage points, while overseas demand is expected to slow by 0.1 percentage point. Due to the economic downturn in the United States and Europe, export growth is expected to slow from 4.7% this year to 2.4% next year.

It is unclear whether real GDP will rise as the Japanese government anticipates. This is because the Bank of Japan (BOJ) has ruled out any further tightening. The BOJ effectively raised the base rate on the 20th by increasing the upper limit on the long-term interest rate range from 0.25% to 0.5%. In the forecast, the long-term interest rate is 0.1%.

“If interest rates rise, corporate investment and housing investment may shrink, and domestic demand may freeze again,” the Nikkei warned. According to the government’s forecast, “the government’s forecast is 0.5 percentage points higher than the average forecast of 1.0 percent by 15 private think tanks.”

On the same day, the Japanese government reduced its forecast for real GDP growth in fiscal year 2022 from 2.0% to 1.7%, reflecting the impact of inflation.