Japan: Solid recovery from the pandemic this year, but clouds are gathering

The Japanese economy is doing well over the summer. Gross domestic product recovered at a solid rate of 0.5 percent in the second quarter of 2022. The recovery was mainly driven by robust consumption growth after lockdown measures to contain the pandemic were lifted. Business investment also increased, while private residential investment contracted as in previous quarters.

I expect economic growth to be rather solid this year. In the third quarter, I again think that the economy will expand at a relatively high rate before slowing down in the fourth quarter. As in many other countries, inflation is a serious risk to the outlook. Currently, inflation remains above the central bank target rate. Energy prices will probably remain high, but I do not see further depreciation pressures on the yen.

Overall, I expect economic growth to average 1.4 percent in 2022 and 1.2 percent in 2023 and 2024. Inflation will be at 2.2 percent in 2022 before decreasing to 1.6 and 1.2 percent in 2023 and 2024.

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