FX.co ★ IMF Sees Japan on Track to Achieve 2% Inflation Target

The International Monetary Fund (IMF) has expressed a positive outlook on Japan's trajectory towards achieving the central bank's 2% inflation target, fueled by robust consumption and capital expenditure. According to the IMF, following an extensive period characterized by minimal inflation, Japan’s economy is now exhibiting signs of arriving at a new equilibrium. Growth is anticipated to reach 0.5%, accompanied by inflation at 2%. Nonetheless, the IMF cautioned that risks to growth lean towards the downside, highlighting concerns over a potential global economic slowdown and weaker domestic consumption. In February, Japan’s headline inflation stood at 3.7%, primarily driven by elevated food costs impacting households. The fund predicts a gradual easing of inflation, aligning with the Bank of Japan’s objectives. Furthermore, the IMF suggested to the board that they consider the phased withdrawal of monetary support should the economy perform as expected. The IMF projects economic growth of 1.2% in 2025, with inflation moderating to 2.4%. The Bank of Japan has increased interest rates to 0.5%, underscoring its confidence in Japan's progress concerning its inflation target.