Japan’s central bank yesterday hiked its economic growth forecasts, citing an improved global outlook and a weaker yen but the country’s minister of finance warned of “uncertainty” caused by US President Donald Trump taking office.
After its first meeting of the year, the Bank of Japan (BOJ) also held off any fresh monetary-easing measures, although earlier spending data highlighted the challenge facing officials trying to refire the world’s No. 3 economy.
The BOJ tipped expansion to hit 1.4 percent in the current fiscal year through next month, compared with its previous 1 percent estimate, and 1.5 percent growth in the following 12 months, from its earlier 1.3 percent forecast.
In the year to March 2019 it predicted 1.1 percent growth, up from an initially flagged 0.9 percent.
“The projected growth rates are somewhat higher, mainly reflecting improvement in overseas economies and the yen’s depreciation,” the bank said in its quarterly outlook.
The yen has lost about 10 percent of its value against the US dollar since the bank’s previous forecast in November last year as traders bet Trump’s planned infrastructure spending, tax-cutting measures would fire US inflation and force the US Federal Reserve to ramp up interest rates.
A weaker yen is positive for Japanese exports as it makes them more competitive abroad.
However, Trump’s arrival in the Oval Office has also fueled confusion in world capitals, with fears he would also follow through on promises to tear up free-trade agreements, throw up tariffs and spark a global trade war.
Japanese Minister of Finance Taro Aso told parliament: “The economy is a living thing and Trump uncertainty has emerged and is globally recognized.”
However, he stressed that the yen’s weakness would continue well into this year, at least as he sought to reassure over the outlook for the domestic economy.
As expected, policymakers also kept monetary policy unchanged and their inflation projections largely unchanged as they struggle to bring an end to almost two decades of on-off deflation.
Data yesterday showed that household spending fell in December last year for the 10th consecutive month, declining 0.3 percent, although that was better than expectations of 0.9 percent.
Last week, Japan logged its first annual consumer price decline in four years.
The data came as worrying reading for Japanese Prime Minister Shinzo Abe, who came to office in December 2012 with a blockbuster growth plan of massive monetary easing, government spending and red-tape slashing.
While the measures had a positive initial impact, growth remains fragile and inflation is still well below the BOJ’s 2 percent target.
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