| Summary: | This 2023 Article IV Consultation highlights that the Japanese economy continues to recover driven by domestic demand while a weaker global economy has been weighing on external demand. The economic recovery is projected to continue in the near term amid pent-up demand, supply chain improvements, border reopening and policy support. Japan’s economic recovery is expected to continue, supported by pent-up demand, supply chain improvements, border reopening, and policy support. Inflation is expected to rise further in early 2023, reflecting the delayed effect of yen depreciation and border reopening before declining again. While domestic risks are balanced, there are significant external downside risks to growth. Structural policies should help boost income growth, support start-ups, deepen digitalization, and achieve climate targets. Labor market policies should encourage more women and older persons to join the work force and reduce labor market duality. Higher carbon pricing could help Japan achieve its climate targets in a growth-friendly way
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