Mumbai, Feb. 9 -- The Japanese economy continues to recover from the pandemic. Initially driven by cost-push factors, inflation is becoming demand driven with the output gap closed and labor shortages intensifying, according to a latest update from International Monetary Fund (IMF). In the near term, the focus should shift to tighten fiscal policy and wind down unconventional monetary policy, while maintaining financial stability. In the medium term, the priority is to rebuild fiscal buffers, strengthen the fiscal framework, and advance structural reforms, with labor market reforms at the forefront, to support potential growth.
The economic recovery picked up in 2023 and the output gap is estimated to have closed. Core inflation (excluding...