Japan’s economy has been helped by the fact that the world economy has been growing at a reasonable pace. Japan’s labor market is very tight, wages are creeping up, and Japan may have finally conquered its deflationary concerns.

Japan’s real GDP is estimated to have grown by 1.5% in 2017, propelled by improving exports and the government’s fiscal stimulus.

Some fiscal consolidation is set to resume this year, so real GDP is projected to increase only 1.2% in 2018 and 1% in 2019. An OECD report suggests that that extremely high government debt which in some ways supported growth also poses a risk to the economy.

Government debt in Japan has surpassed 220% of GDP, which represents the highest debt burden recorded in the OECD area. Thus far Japan’s debt burden has been manageable since it has been helped by negative interest rates on government bonds of less than ten years maturity. The Bank of Japan currently own 41% of the outstanding stock of government bonds. 

Japan Seems To Have Solved Its Deflationary Problem