Japan: Historic recovery continues
The current economic recovery, the longest in Japan’s post-war history, has matured into a self-sustained expansion driven by private domestic demand. The expansion is projected to continue, with growth of about 2% in 2007-08, thanks to buoyant business investment underpinned by record corporate profits and private consumption. Inflation is expected to increase only gradually.
The Bank of Japan should not raise the short-term policy interest rate further until inflation is firmly positive and the risk of renewed deflation becomes negligible. Raising the lower limit of the 0 to 2% understanding of price stability would be appropriate. The government should establish a more detailed medium-term fiscal plan while strengthening the link between the plan and the annual budget process. Further structural reform, including regulatory reform in a broad range of areas, is needed to sustain growth in the face of rapid population ageing.
| Population (000s), 2005 | 127 757 |
| Area (000 sq km) | 378 |
| Currency | Yen |
| GDP (Billion USD), 2005 | 3 901.6 |
| Life expectancy at birth (Women, Men), 2004 | 85.6, 78.6 |
| Total labour force (000s), 2005 | 66 500 |
| Government type | Constitutional Monarchy |
| Indicators | % change unless otherwise indicated |
|---|
| 2006 | 2007 | 2008 |
|---|
| GDP growth | 2.8 | 2.0 | 2.0 |
| Household savings ratio | 2.9 | 2.9 | 2.9 |
| Consumer price index | 0.3 | 0.3 | 0.8 |
| Short-term interest rate (%) | 0.2 | 0.4 | 0.9 |
| Unemployment rate (%) | 4.2 | 3.9 | 3.6 |
General government financial balance
(% GDP) | -4.6 | -4.0 | -3.7 |
Current account balance
(% GDP) | 3.8 | 4.5 | 5.3 |
Source: OECD©
OECD Observer No. 258/259, December 2006
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