Friday 17 August 2012
Last Update 18 August 2012 1:42 pm
TOKYO: Japan’s nominal economic growth will exceed real growth for the first time in 16 years next year, the government said, signaling that a moderate recovery will continue and help the country emerge from deflation.
The forecast may ease pressure on the Bank of Japan for further action to beat deflation, although the government is expected to keep pressure on the central bank to offer more monetary stimulus if slowing overseas growth hurts prospects of recovery.
“Japan’s economy is expected to recovery moderately on robust private demand,” the government said in the forecast issued on Friday, but warned that yen rises and the global slowdown posed risks to the export-reliant economy.
Economics Minister Motohisa Furukawa said the government would not rule out the possibility of compiling a supplementary budget to support new areas of growth, such as green technology, to ensure that the recovery momentum is sustained.
“Now is a good chance to pull Japan out of deflation as soon as possible. It’s important to take various steps for this,” Furukawa said.
In the mid-year growth forecasts, the government said it expects Japan’s economy to expand 1.7 percent in the fiscal year beginning in April 2013, from an anticipated increase of 2.2 percent in the current business year.
The forecasts matched the BOJ’s projection issued last month and are roughly in line with the median estimate of analysts polled by Reuters in July.
The Cabinet Office, which made the estimate, also said Japan will likely achieve nominal gross domestic product (GDP) growth of 1.9 percent in fiscal 2013, exceeding real GDP growth for the first time in 16 years as it steadily emerges from deflation.
The GDP deflator, a broad measure of price trends, will likely rise 0.2 percent in fiscal 2013 after declining 0.3 percent this business year, as the output gap will steady narrow reflecting Japan’s economic recovery, it said.
The government’s real GDP estimate for the current fiscal year, ending in March 2013, was unchanged from its previous estimate made late last year.
The government said it expected the consumer price index to rise 0.2 percent this year, which would mark the first rise in four years, and by around 0.5 percent in fiscal 2013/14.
The new estimates will serve as a basis for when the government compiles the budget for next fiscal year.
In budget guidelines approved on Friday, the government set its focus on promoting its growth strategy as it aims to strike a balance between efforts to prop up the economy and rein in snowballing debt.
It set spending and borrowing caps to help prevent Japan’s debt, already worth twice its annual economic output, from growing too much, leaving it with little room to offer fiscal support if the economy weakens and putting the onus on the BOJ.
Last week, the government pushed through a plan to raise the 5 percent sales tax to 8 percent in 2014 and to 10 percent in 2015. It is thus keen to convince voters that the economy will have enough momentum to withstand the tax hike’s impact.
Furukawa said a rush in consumer spending expected ahead of the planned sales tax hike will likely offer a boost to the economy of around 0.6 percent of GDP in fiscal 2013.
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