Bank of Japan policymakers yesterday lowered their growth expectations for the economy, as tepid data and a sales tax rise have fueled fears about the strength of the nation’s recovery.
The downgrade was detailed in the central bank’s semi-annual outlook, issued after board members ended a meeting at which they held fire on expanding a massive stimulus drive launched a year ago.
Central bank policymakers expect the world’s No. 3 economy to expand by 1.1 percent in the fiscal year to next March, down from an earlier 1.4 percent forecast, according to the report which gauges the median of members’ views.
However, their view that inflation would come in at 1.3 percent over the same time period was unchanged from a previous forecast.
The report was seen as a key measure of whether the bank still thinks it can reach a 2 percent inflation target by next year.
“While the Bank of Japan left policy settings unchanged today, we still think more easing will be announced in the second half of the year,” said Marcel Thieliant, an economist at London-based Capital Economics.
The central bank’s inflation target — and the massive easing campaign launched last year — is a cornerstone of Japanese Prime Minister Shinzo Abe’s wider bid to drag the country out of years of deflation and slumbering growth.
After the bank’s last meeting on April 8, Bank of Japan Governor Haruhiko Kuroda said the economy was pushing ahead, despite fears that the April 1 tax rise would dampen consumer spending.
However, fresh data earlier yesterday showed factory output rose a weaker-than-expected 0.3 percent in March and producers pointed to weakness over the coming months.
The figures came after a 2.3 percent month-on-month fall in February’s industrial production, highlighting an uneven recovery.
“The manufacturing PMI [purchasing managers’ index] suggests that output will fall sharply following the consumption tax hike,” Capital Economics said, adding that “the manufacturing sector had already lost momentum well before the sales tax hike kicked in.”
Producers were also less confident, with a survey accompanying the data showing they expected factory output to shrink 1.4 percent last month and inch up just 0.1 percent this month.
However, over the January-to-March quarter, Japan’s factory output grew by 2.8 percent, offering hope that overall economic growth would beat an “anemic” reading in the last quarter of last year.
Japanese GDP growth “likely accelerated in the first quarter after the anemic 0.2 percent quarter-on-quarter gain in the fourth quarter, especially since private consumption should be particularly buoyant, but the outlook has worsened,” Capital Economics said.
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