ECONOMIC REPORT OF THE PRESIDENT

for example, Japan has grown almost as robustly as the United States over
the past 25 years. For this reason, promoting fertility while encouraging
women’s continued engagement in the labor force is a pillar of the second
phase of Abenomics.
Deflationary pressures continue to plague Japan despite expansive
monetary policy. In 2016, the Bank of Japan began an experiment using
negative interest rates to complement its quantitative easing program. The
objective is to put downward pressure on short-term interest rates and raise
inflation by reinforcing its commitment to its inflation target and trying
to encourage spending over saving. Partly as a result of these policies, the
yield curve flattened, with even the 10-year benchmark yield falling below
zero. More recently, the bank has announced continued asset purchases
and introduced a policy of yield curve control, which sets up an interest
rate target of around 0 percent on 10-year Japanese government bonds.
The IMF Global Financial Stability report cautions on the increased reliance
of Japanese banks on wholesale dollar funding to finance foreign asset
purchases, which could make banks more sensitive to disruptions in dollar
funding markets.
Emerging Markets
The situation in some emerging markets has improved relative to
2015, but growth in 2016 is still underperforming expectations compared
with forecasts made in 2015, while there continues to be uncertainty surrounding
major commodity exporters and China. Emerging markets are
expected to account for 54 percent of world growth in 2016, compared with
53 percent in 2015, and 60 percent between 2010 and 2014. As a group, their
2016 growth is expected to come in below the 2015 forecast. The IMF estimates
that growth will pick up in 2017, as growth in several oil-producing
emerging markets, such as Brazil, and Russia (which are expected to recover
from recession) compensates for the steady slowdown in China (IMF 2016b).
Oil-Exporting Emerging Markets. The substantial decline in oil prices
from mid-2014 through 2016 has put considerable pressure on the economies
of many oil exporters, especially those with undiversified economies.
Oil sales remain the primary source of government revenues in several
oil-exporting countries, so the drop in oil prices from over $100 a barrel in
2014 to between $25-$55 a barrel in 2016 has put tremendous pressure on
government budgets. As figure 2-44 demonstrates, the oil price that guarantees
a neutral fiscal balance is well above the current price of Brent in many
oil-exporting countries.
Beyond the fiscal concerns, in countries where the price of extracting
oil is relatively high, the strain of lower prices for oil and other commodities
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