Japan’s economic growth is expected to gain momentum in 2025 before stabilizing at its potential rate of 0.5 percent in the medium term, according to the International Monetary Fund (IMF). The organization’s latest Article IV consultation highlights strengthening private consumption, driven by above-inflation wage growth that will boost household disposable income.

Private investment is also projected to remain robust, supported by high corporate profits and favorable financial conditions.

The IMF anticipates headline and core inflation to align with the central bank’s 2 percent target by late 2025, aided by moderating oil and food prices. Inflation has remained above target for over two years, with a tight labor market driving the strongest wage growth since the 1990s.

Japan’s current account surplus is expected to shrink in 2025 as the income balance narrows, while the trade balance is likely to stay in deficit.

Despite the positive outlook, the IMF warns that Japan faces structural challenges, including an aging population and high public debt. Key policy priorities include re-anchoring inflation expectations, rebuilding fiscal buffers, and advancing labor market reforms to sustain long-term growth.