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

By Staff, with files from The Associated Press | December 20, 2016 | Last updated on December 20, 2016
2 min read

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.

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Staff, with files from The Associated Press

The Associated Press is an American not-for-profit news agency headquartered in New York City.