Wed, Jan 25, 2012 - Page 5 News List

Bank of Japan says economy is set to shrink

AFP, TOKYO

A Bank of Japan employee shovels snow at the bank in Tokyo yesterday. The central bank forecast that the economy will contract in the current fiscal year, but kept monetary policy steady, expecting that exports to emerging markets and spending for reconstruction after last year’s earthquake and tsunami will help fuel a steady recovery later this year.

Photo: Reuters

Japan’s economy is expected to shrink 0.4 percent in fiscal 2011, the country’s central bank forecast yesterday, a reversal of its previous projection of 0.3 percent growth.

The Bank of Japan said it expected growth of 2 percent in fiscal 2012, a slight reduction from its previous prediction of 2.2 percent growth.

“Japan’s economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen,” it said in a statement.

It also cited the “remaining effects” of record flooding in Thailand that disrupted the supply chains of many of the country’s key manufacturers.

The bank said the reversal in the forecast was due to past GDP statistics being revised, as well as the financial slowdown in the rest of the world. Japan is now the world’s third-biggest economy after it was overtaken by China in the global GDP stakes in 2010.

It said that the outlook was for “moderate recovery.. as the pace of recovery in overseas economies picks up ... and reconstruction-related demand after the [March] earthquake disaster gradually materializes.”

However, it warned: “The sovereign debt problem in Europe could result in weaker growth not only in the European economy but also in the global economy particularly through its effects on global financial markets.”

Japan has been mired in deflation for years, and the central bank said it expected prices excluding fresh food to remain largely static last year and this year.

It projected deflation for fiscal 2011, which ends in March this year, at 0.1 percent, with inflation of 0.1 percent for the year beginning in April this year, compared with previous forecasts of zero percent and 0.1 percent respectively.

“Although global financial markets remain under heavy strain, financial conditions in Japan have continued to ease,” the bank added.

It left its key interest rate unchanged at between zero and 0.1 percent, saying its policy board vote on the issue was unanimous.

“The Bank is committed to continuing the virtually zero interest rate policy” and monetary easing measures, it said.

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