Japan Likely to See “Healthy Growth” through 2026: World Bank Exec

Jiji Press

17:20 JST, January 19, 2025

Washington (Jiji Press)—World Bank Deputy Chief Economist Ayhan Kose has said that the Japanese economy is expected to “deliver healthy growth” over the next two years driven by increased consumption backed by rising wages.

He also indicated that there is room for the Bank of Japan to raise interest rates.

In its economic forecast released Thursday, the World Bank predicted Japan’s gross domestic product will grow a real 1.2 pct in 2025 and 0.9 pct in 2026.

In an interview with Jiji Press, Kose pointed out that “when wage growth surpasses inflation in real terms, obviously, the income earners are going to be in a better position to spend.” That could in turn lead to “better growth outcomes,” Kose also said.

He added that the BOJ has “some room to raise rates further, if necessary,” and that the central bank will adjust its policy “accordingly in the coming months.”

Kose traced the recent global uptrend for long-term interest rates to a “byproduct” of an “unusual economic cycle” in which the U.S. economy and inflation remain stronger than expected and to “changing expectations” about the U.S. Federal Reserve’s interest rate target.

He also noted that the uncertainties surrounding economic, regulatory and trade policies of the administration of incoming U.S. President Donald Trump as well as fiscal deterioration in many advanced economies are affecting the “term premium” on long-term interest rates.

Kose expressed concern that the incoming U.S. administration’s high tariff policy could further deepen the “fragmentation” of the global economy, with its impact expected to be particularly serious for developing countries.

Still, he emphasized that what they need to do, even in this difficult external environment, is to “aggressively integrate (themselves) into the global economy” and “find strategic partners.”

Trade agreements like the Trans-Pacific Partnership, which comprises 12 countries including Japan, Australia, Canada, Peru, Singapore and Britain, could be useful in this regard, he suggested.