Tokyo, 28 January 2022 (TDI): Japan has seen a major comeback in its economy despite the challenges posed by the pandemic. This was due to high vaccination rates and strong policy support. The recovery is expected to strengthen in 2022.
Due to very strong and timely support the Japanese economy is recovering from the pandemic.
The country saw its GDP growth contract by 4.5% in 2020 but the following year, there was a growth of 1.
6%.
Japan has had stringent containment measures ever since the pandemic began and it currently stands, the country has the lowest levels of COVID cases among all developed countries.
The country also adopted several supplementary budget packages aimed at providing relief to households, preventing unemployment, and providing credit lines for firms.
The Bank of Japan facilitated financing for firms while maintaining financial market stability, this was done through expanding asset purchases and increasing liquidity. Growth is expected to reach 3.3% in 2022. Inflation is expected to remain below 2%. The current account surplus is estimated to stay above 3%.
The Future
The country announced a new fiscal stimulus package in November 2021 that will provide the necessary support, the IMF projects the primary deficit to be around 6.7% of the total GDP in 2022.
The IMF suggests several fiscal policies be undertaken by the government to ensure that recovery stays on track these include fiscal consolidation to reduce debt sustainability risks.
Reforms to increase labor supply, investment, and productivity. Strengthened financial sector policies to contain the build-up of systemic risks.
The IMF also suggests changes in the monetary policy these include steepening the yield curve by shifting the yield target from 10 years to a shorter maturity.
If inflation momentum remains weak it would be in the government’s best interest to cut the policy rate, additionally, increasing bank reserves could help strengthen the transmission of the negative policy rate to money markets.
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