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Wed, Dec 20, 2006 - Page 10 News List

Tokyo trims GDP growth projection to 1.9 percent

AP , TOKYO

Shoppers crowd in a market in Tokyo's Ueno district on Dec. 8. The Japanese government yesterday downgraded its forecast for economic growth this year because of sluggish consumer spending.

PHOTO: AP

Japan's government yesterday downgraded its forecast for economic growth this year because of sluggish consumer spending but predicted that the world's second-biggest economy would grow 2 percent in the coming fiscal year for a sixth straight year of expansion.

The country's GDP is expected to expand only 1.9 percent in the current fiscal year through March, down from an earlier forecast of 2.1 percent, the Japanese Cabinet Office said in its year-end annual outlook report.

But robust corporate earnings are expected to push up workers' income and fuel domestic consumption -- helping rev up growth to 2 percent next year, it said.

Minister of Finance Koji Omi called it a "relatively bright economic outlook," adding that "we believe the economy remains on sound footing."

Still, both years would trail last fiscal year's 2.4 percent increase.

The downward revision came after data revealed that growth in the July to September period was far weaker than first thought.

Earlier this month, the government revised the third-quarter expansion rate to an annual pace of 0.8 percent from 2.0 percent owing to weaker consumer spending and capital investment.

Those concerns may put pressure on the Bank of Japan to hold off raising interest rates again. The central bank raised interest rates in July for the first time in six years, to only 0.25 percent from virtually zero.

Yesterday, the Bank of Japan concluded its last policy meeting of the year by leaving its benchmark interest rate unchanged at 0.25 percent, turning attention to a possible hike early next year.

The Bank has pledged not to raise rates until consumer prices show clear signs of rising.

But Economics Minister Hiroko Ota yesterday suggested it was too soon to declare that Japan had escaped the spiraling cycle of falling prices, known as deflation, that had hamstrung the economy for years.

"The end of deflation has come into range," she said. "But we must watch the situation for the time being."

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