Japan Economic Outlook for 2024

In the recent July-September quarter of 2023, Japan’s real GDP growth rate turned negative for the first time in three quarters. Both consumption and capital investment decreased for two consecutive quarters, but this was due to temporary factors such as a slowdown in consumption recovery, which had been propelled by the resumption of economic activities, and temporary delays in capital investment.
Although momentum has slowed from the initial phase of economic normalization, Japan’s economy is expected to continue on a recovery track in 2024. It is anticipated that a positive cycle of price and wage increases will begin, surpassing the potential growth rate, leading to a gradual inflationary trend and avoiding deflation.

The driving forces of the Japanese economy include (i) consumption underpinned by the government’s energy price control measures, cash benefits to households, accumulated savings during the pandemic, and wage increases, (ii) capital investment driven by expansion of digital transformation (DX) and investment to enhance operational efficiency against the backdrop of solid corporate earnings and labor shortages, and (iii) further recovery of inbound tourism demand. Unlike the U.S. and Europe, which have been impacted by rate hikes, it is expected that Japan’s real GDP growth rate will continue to exceed the potential growth rate next year.