The Japanese economy rebounded strongly in 2023 following a full reopening post-pandemic. Private consumption remains resilient despite high inflation. Business investment weakened in Q2-Q3 but is expected to rebound going forward, reflecting ongoing efforts toward digitalization and adoption of labor-saving technologies. Exports have surprised on the upside despite global headwinds.

Consumer price inflation has started to moderate in 2023, primarily due to a decline in energy prices. However, it remains relatively high, as the core consumer price index (CPI) less fresh food rose by 2.5 percent year-on-year in November 2023, staying above BOJ’s price target since April 2022. The core CPI less fresh food is expected to decline gradually but remain elevated at 2.6 percent in 2024 from 3.1 percent in 2023.

Japan’s external position has remained strong in 2023, supported by a large primary income surplus and a steadily narrowing trade deficit. The yen continued to be weak against the U.S. dollar, depreciating by more than 10 percent in 2023, reflecting a divergence of monetary policy stance with the U.S. and other major economies.

These conclusions are highlighted in the 2023 Annual Consultation Report on Japan.