Key challenges for Japan’s economy as BoJ keeps rates unchanged

Japan’s central bank issued an upbeat economic assessment when it wrapped up its final central bank meeting of the year. It kept its ultra-lax monetary policy unchanged at -0.1%

While the U.S. Federal Reserve is raising interest rates, Japan is still struggling to pull out of a slow-growth rut. But the BoJ’s assessment of the economy said exports, investment and industrial production had shown signs of improvement.

Structural factors such as low productivity and a shrinking population are hindering Japan’s recovery, and BoJ Governor Haruhiko Kuroda has called for broader economic reforms and government spending to supplement his monetary policy “bazooka.”

Here are a few key indicators to consider.

GROWTH: Japan’s economy grew at a 1.3% annual pace in July-September, the third straight quarter of expansion but below most economists’ forecasts. Quarterly growth was 0.3%. By comparison, the U.S. economy expanded at a 3.2% annual rate in the last quarter.

TRADE: Japan’s exports fell 0.4% from a year earlier in November. That was better than forecast and the smallest decline in over a year. Mostly it was due to a weakening in the Japanese yen, which has lost value as the U.S. dollar surged after Donald Trump was elected president.

INFLATION: The BoJ said Japan’s consumer price index would likely remain at zero or slightly negative for now, well below a 2% target set nearly four years ago. At the same time, surging costs for health care and fresh vegetables are causing consumers to hold back on spending.

UNEMPLOYMENT: Japan’s jobless rate is at 3%, and many companies complain they cannot find enough workers.

INCOMES: Real incomes have been falling or flat, as employers resist raising wages out of fears they would be locked into higher labour costs in a downturn.

INVESTMENT: A weaker yen can boost earnings of Japanese companies that get a large share of their profits overseas. So far, however, strong profits have not resulted in a surge in corporate investment, which has been at best modest and often flat or slightly negative in the past year.

WILD CARDS: Apart from the slowdown in growth in key export markets like China, there’s uncertainty over the outlook for global markets, the economy and trade once U.S. President-elect Trump takes office. Britain’s plans to leave the European Union and broader geopolitical crises are also potential risks, the BoJ said.

Staff, with files from The Associated Press

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