Book Description

Japan has navigated the dual shock of the pandemic and the energy crisis well. However, significant headwinds from weak global growth, geopolitical tensions and high inflation highlight the importance of enhancing the Japanese economy’s resilience to shocks. In a context of inflation, which has risen above target, and pressures from divergent monetary policy from peers, adjustments to monetary policy settings have commenced. Given high public debt, fiscal consolidation to rebuild fiscal buffers, underpinned by a credible medium-term fiscal framework to put the debt-to-GDP ratio on a clear downward path, is key. Longer-term sustainability also requires reducing greenhouse gas emissions in line with government targets, calling for green investment, innovation and carbon pricing. Reforms to improve the innovation framework and incentives for start-ups are key to boost productivity and address ageing pressures. Removing obstacles to the employment of women and older persons and making greater use of foreign workers are also essential to counter demographic headwinds. Strengthening the financial position of young people and policies to support families and children, such as improved parental leave, would help to reverse the downward trend in the fertility rate. SPECIAL FEATURE: ADDRESSING DEMOGRAPHIC HEADWINDS