[Asia Economy Reporter Seo So-jeong] Japan's economy is expected to continue a moderate recovery in the second half of this year, but the pace of recovery is likely to slow due to worsening external conditions such as the global economic slowdown. Despite recent global inflationary pressures, Japan's core inflation rate for next year is projected to remain at around 1.1?1.4%, suggesting that the monetary easing stance will continue.
The Bank of Korea's Tokyo office stated in its report "Second Half Japan Economic Outlook and Key Issues" on the 14th that Japan's economy has shown slight improvement in exports and a recovery in facility investment from a slump following the easing of China's lockdown measures.
Japan's real GDP in the first quarter of this year decreased by 0.1% quarter-on-quarter due to sluggish net exports and facility investment. Private consumption has improved since March this year as economic activities expanded following the lifting of COVID-19 restrictions, and facility investment, which was weak in May due to the impact of China's lockdown measures, turned to a sharp increase in June.
Regarding construction investment, the growth in private housing starts has slightly slowed, while public construction continues to decline. Exports were sluggish in the automobile sector due to supply constraints caused by China's lockdown, but increased mainly in general machinery and other sectors.
Major private institutions forecast Japan's quarterly real GDP growth rates for this year to be 0.8% in the third quarter and 0.5% in the fourth quarter. Growth is expected to decline in the fourth quarter due to the global economic slowdown.
The employment situation is expected to continue improving alongside economic recovery. The unemployment rate is expected to remain low, and nominal wages are projected to continue rising, but real wages are anticipated to decline due to the expanding inflationary pressures. The final wage increase rate from Japan's spring wage negotiations this year was 2.07%, up 0.29 percentage points from last year's 1.78%.
Core inflation (excluding fresh food) is expected to continue rising for the time being due to increases in energy and food prices. The annual core inflation rate for next year is forecasted to moderate to around 1.1?1.4%. The report explained, "International raw material prices such as oil are expected to stabilize downward, and factors such as the learning effect from prolonged deflation experience, aging population, and household saving tendencies due to income insecurity in old age will constrain price increases."
The Bank of Japan's monetary easing stance is also expected to continue for a considerable period. The Bank of Japan maintains its policy of "quantitative and qualitative monetary easing through short- and long-term interest rate operations" until the necessary time to achieve the 2% "price stability target." Most research institutions expect the Bank of Japan to maintain its current short- and long-term interest rate operation targets until the end of this year. The Bank of Korea stated, "The Bank of Japan is expected to keep the short-term interest rate at -0.1% and the long-term government bond yield, such as the 10-year maturity, at around 0% until the end of this year."
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