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Published On: Sun, Aug 17th, 2014

Bank of Japan Board to shrink forecasts on fiscal year

At its October meeting, the Bank of Japan may revise its growth forecast downwards, which would underscore the current weakening of the economy.

At its October meeting, the Bank of Japan board may revise its growth forecast downwards, which would underscore the current weakening of the economy.

For the Bank of Japan, the fourth time to cut its growth forecast on the fiscal year might be on its way. The reason: exports are not sufficient to boost the economy hit by a sales tax hike in April.

Growth for the 12-month period to March 2015 might be lower than the BOJ board median forecast of 1 percent, according to undisclosed sources, and is estimated at around 0.4 percent, by a Bloomberg survey on 24 economists.

Another potential downward revision by BOJ board would stress on the weakening of the Japanese economy. The bank governor, Haruhiko Kuroda,is increasingly pressured to increase central bank stimulus to stimulate economic growth which has slumped badly in the second quarter.

Japanese GDP declined by 6.8 percent annually in the second quarter, with consumer spending and investments plummeting after the sales tax increase by 3 percent, to 8 percent. June saw the largest industrial production drop since March 2011, with companies trying to shrink elevated inventories.

Exports rendered little support to the economy although, since Prime Minister’s Abe taking office in December 2012 and undertaking reflationary policies, the yen has slumped 16 percent against the dollar. In Tokyo, at 4:02 pm, the JPY was 0.1 percent lower at 102.55 per dollar.

June outbound shipments declined by 2.5 percent, compared to late September 2012, when the yen started depreciating rapidly amid expectations Abe would helm the flight against two decades of stagnation.

The October 31 meeting of the BOJ is to reconsider its economic prospects. Last year, the policy board forecast was 1.5 percent, afterwards revised to 1 percent on July 15.

The Bloomberg survey showed economists’ view on Japanese economy, projections being lower than those of BOJ. Analysts’ median forecast on growth is at 1.2 percent for the next fiscal year starting April 2015, below the BOJ projection of 1.5 percent. They forecast a 1 percent expansion for the year to follow, whereas BOJ’s forecast is 1.3 percent.

According to BOJ governor Kuroda, mounting inflation expectations coupled with weakened economy, will cause price rises which will result in inflation reaching the BOJ target. The outlook of weakening growth would impede the Bank of Japan’s efforts to stimulate growth in prices.

There are apprehensions among some BOJ officials related to stalling inflation expectations, and the prospects of its possible decline, as they consider the recent deceleration observed in consumer price gains.

Most recent projections by BOJ board envisage price hikes acceleration, from 1.3 percent to 1.9 percent, from the current fiscal year until next year, and then to 2.1 percent for the following year.

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