TOKYO, Reuters – Japan’s Bank of Japan reduced its estimation of the country’s potential economic growth to “around zero” or “lightly positive,” underscoring that labour market reforms are needed to address the problems posed by a shrinking working-age population.

In its latest quarterly economic outlook and price outlook report, released Thursday by the BOJ, it presented this finding.

The central bank had previously estimated that Japan would grow by “above 0.5%” in its January estimate.

The BOJ reported that an “accommodative monetary climate and government steps towards transitioning Japan’s economy to a post-pandemic future will be helpful” in predicting an increase in potential growth.

Trend growth is also called potential growth. It is the output that an economy is capable of producing at a constant rate of inflation. This is affected by factors like the level and efficiency of labour, capital stock and the labour force.

Since long, the International Monetary Fund has urged Japan to intensify labour market reforms as part of long-term economic recovery.