BOJ cuts Japan’s potential growth estimate, highlighting need for reforms By Reuters

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© Reuters. FILE PHOTO: People cross a street in Tokyo March 18, 2015. . REUTERS/Yuya Shino

TOKYO (Reuters) – The Bank of Japan cut its estimate on the country’s potential economic growth rate to “around zero or slightly positive,” underscoring the need for labour market reforms and deregulation to overcome the challenges posed by a dwindling working-age population.

The BOJ presented the finding as part of its quarterly economic and price outlook report released on Thursday.

In the previous estimate in January, the central bank said Japan’s potential growth was “above 0.5%.”

“Accommodative monetary environment and government steps to transition Japan’s economic structure towards a post-pandemic world will help” with an expected rise in potential growth, the BOJ said in the report.

Potential growth, also known as trend growth, is the level of output an economy can produce at a constant inflation rate and is swayed by factors such as the level of capital stock, potential labour force and labour efficiency.

The International Monetary Fund has long called on Japan to speed up labour market reform and deregulation as part of efforts to achieve a sustained, long-term economic recovery.

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