The post-pandemic recovery is moderating against the backdrop of heightened uncertainty. The strong outcomes of the latest annual spring wage negotiations, the highest in three decades, could signal a turning point for price, growth and income dynamics, a long-standing aim of Japanese policies. Global monetary and financial sector developments and persistent inflation are putting pressure on the monetary policy framework, while interest rate and credit risks in the financial sector warrant close monitoring. Given high public debt, fiscal consolidation to rebuild fiscal buffers, underpinned by a credible medium-term fiscal framework to reduce the primary deficit and put the debt-to-GDP ratio on a clear downward path, is key. Rapid population ageing will drag down trend growth unless productivity gathers speed. It will exacerbate fiscal pressures, which requires policies to contain health and long-term care spending. Increasing the share of basic research in total R&D spending and the share of business-financed R&D performance at universities, strengthening competition and improving access to finance for start-ups would foster business dynamism and innovation. Longer-term sustainability also requires reducing greenhouse gas emissions in line with government targets, calling for green investment and innovation plus carbon pricing.