Japan’s government slightly lowered its growth forecast for the current fiscal year due to sluggish exports and a drop in demand after the April sales-tax hike, but the forecasts were largely in line with the Bank of Japan’s projections.
Members of the government’s top advisory panel did not object to the BOJ’s view that consumer prices will continue to rise under its quantitative easing programme, showing there is little difference between the government’s and the BOJ’s assessment of the economy.
The convergence of views suggests the BOJ is unlikely to face pressure from the government to ease monetary policy further as the government turns its attention to compiling next fiscal year’s budget.
"Private sector members agreed that consumer prices can continue to rise as the output gap moves into positive territory," economics minister Akira Amari told reporters after a meeting of the Council on Economic and Fiscal Policy (CEFP), the government's top advisory panel.
The government now sees real gross domestic product growth at 1.2 per cent in fiscal 2014/15, versus 1.4 per cent forecast earlier this year. Growth is expected to accelerate to 1.4 per cent in the following year, according to Cabinet Office estimates.
The estimates are broadly in line with projections made by the Bank of Japan, which last week cut its economic growth forecast for the current fiscal year to 1 per cent. The BOJ expects growth to pick up to 1.5 per cent the following fiscal year.
"I think the biggest factor was the decline in external demand due to a delay in emerging market recovery and less-than-expected export growth," finance minister Taro Aso told reporters.
“I still expect that the exports will grow in accordance with a moderate recovery (in the global economy).”
The Cabinet Office estimates also show that overall consumer prices, including those of fresh food and energy, are seen rising 1.2 per cent year-on-year in fiscal 2014/15 and increasing 1.8 per cent in the following year. The consumer price estimates exclude the effect of the sales tax hike.
That is little changed from the BOJ’s CPI estimates, which are 1.3 per cent this fiscal year and 1.9 per cent in fiscal 2015/16.
The Cabinet Office presented its updated forecasts at a CEFP meeting that focused on monetary policy and consumer prices.
BOJ governor Haruhiko Kuroda reiterated at the meeting that the central bank's quantitative easing is working well so far and that the BOJ will continue its efforts to meet its 2 percent inflation target in the coming fiscal year.
The BOJ has kept monetary policy steady since April last year, when it pledged to double base money via aggressive asset purchases to accelerate consumer inflation to 2 per cent in two years, ending 15 years of mild deflation.
During the meeting, some CEFP members expressed concerns about recent labour shortages in the construction industry and how that could hamper growth.
They also discussed the need to balance fiscal discipline with stimulating the economy when the government compiles the budget for next fiscal year.
Reuters
