September 25, 2024
Our outlook for year-end 2024
0.2%
Economic growth,
year over year
Stronger-than-expected growth in the second quarter underscores that a solid economic recovery is underway, driven by a rebound in domestic demand. Consumer sentiment is rising along with improving household incomes. Second-quarter GDP was 0.7% quarter over quarter, according to a second reading from the Cabinet Office. We anticipate full-year 2024 growth of around 0.2%, slightly above consensus, and a materially stronger 2025.
2.5%
Core inflation, year over year
A closely watched measure of core inflation came in below 2% in July for the first time since September 2022. However, the slowdown was attributable mainly to price comparisons for food (excluding fresh food), mobile phone charges, and lodging, which had risen sharply in the year-earlier month. The pace of the BOJ’s preferred measure of core inflation, which excludes volatile fresh food and energy prices, slowed to 1.9% year over year from 2.2% in June. The pace of headline inflation was steady at 2.8%. On a monthly basis, “core core” inflation was 0.2% in July, higher than 0.1% in May and June. We foresee full-year headline and core inflation of around 2.5%, above the BOJ’s 2% inflation target.
0.5%
Monetary policy rate
The Bank of Japan (BOJ) has raised its policy interest rate twice this year, from a negative level to 0.25%. We anticipate a further rate increase, likely in the fourth quarter. We expect that increasing real wages and inflation will give the BOJ confidence to continue rate hikes in 2025 as the country emerges from an era of stagnation.
2.4%
Unemployment rate
Japan’s unemployment rate rose to 2.7% in July from 2.6% in June. Employment decreased by 200,000, while the number of unemployed individuals rose by 110,000 and the labor force contracted by 90,000. Japan is confronted by a structural labor shortage, which recently has been somewhat alleviated by a greater labor participation rate for women, older people, and more foreign workers but is likely to exert continued upward pressure on wages.
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