2023.07.2612:15:00UTC+00Japan Government Retains Economic View

Japan's government retained its view on the economy as the private consumption and business investment are expected to support moderate recovery, and upgraded its assessment on business conditions. In the monthly report released Wednesday, the Cabinet Office said that the economy is recovering at a moderate pace. The office has kept the same wording since May.

The improvement in employment and income situation underpinned by the impact of the policies will help the economic recovery, the office observed.

However, slowing down of global economies amid ongoing monetary policy tightening was cited as a downside risk to the Japanese economy.

Upgrading the view on business conditions, the office said, "Firms' judgments on current business conditions are picking up."

On Tuesday, Premier Fumio Kishida's government confirmed that the budget will turn positive in the fiscal year ending March 2027 based on the assumption that the economy will grow about 2 percent in real terms.

In the twice-yearly projections, the cabinet office projected a surplus of JPY 2.3 trillion for the year ending March 2027, which was JPY 200 billion smaller than the previous outlook released in January.

The government lowered its deficit estimate for the fiscal 2025 to JPY 1.3 trillion, citing the increasing tax revenue on the back of strong corporate earnings.

Elsewhere, the International Monetary Fund on Tuesday urged the Bank of Japan to be a bit more flexible with its monetary policy and to start preparing for tightening.

IMF Chief Economist Pierre-Olivier Gourinchas said on Tuesday that the BoJ can remain accommodative for now. However, he cautioned that inflation is likely to remain above the 2 percent target due to strong wage growth.

"Our recommendation is to be a bit more flexible, and maybe move away from the yield curve control that it has," Gourinchas said.

His comments came ahead of the monetary policy announcement of the BoJ on July 28. The central bank is also scheduled to publish its quarterly outlook report outlining the view on GDP and inflation.

The IMF forecast Japan's economy to expand 1.4 percent this year and 1.0 percent in 2024.