Japan’s central bank yesterday raised its growth forecast to 2.6 percent for this fiscal year as recovery in Asia’s biggest economy inches painfully ahead thanks to demand in emerging nations.
“Japan’s economy shows further signs of moderate recovery, induced by improvement in overseas economic conditions,” the Bank of Japan said, raising its GDP forecast from the 1.8 percent it predicted in April.
“Exports and production have been increasing mainly due to high growth in emerging economies and increased global demand for IT-related goods,” the bank said in a statement after a two-day board meeting.
Despite the more upbeat assessment, the bank kept its key lending rate unchanged at 0.1 percent, as expected, and said it would “aim to maintain the extremely accommodative financial environment.”
The rate has not changed since December 2008 — the lowest point in a global financial crisis that plunged Japan into recession — and lags behind other Asian economies that have recently tightened their monetary policies.
The bank slightly downgraded its GDP forecast for the fiscal year next year to 1.9 percent from a previous estimate of 2 percent.
The central bank also warned of risks from Europe, where a fiscal crisis has threatened the global recovery.
The euro has plummeted against the yen recently, hitting Japanese exporters and eroding their competitiveness.
Japan fell into a severe recession amid the global financial crisis but clawed out of it early last year. Since then its recovery has gathered steam, with GDP reaching an annualized 5 percent in the first quarter of this year.
Sustaining growth is a key challenge for Japanese Prime Minister Naoto Kan and his Democratic Party of Japan, but the center-left government also faces another challenge — reducing the world’s largest public debt mountain.
The IMF on Wednesday warned Japan that there was no way around the fiscal pain. Bringing down Japan’s public debt “will require a large and protracted adjustment that will be made more credible by an early increase in the consumption tax,” it said.
The Japanese central bank in its statement also warned that overcoming deflation, a general fall in prices which has long hobbled Japan’s economy, and achieving sustainable growth remained a “critical challenge.”
The bank upgraded its forecast for its core consumer price index, the main gauge of inflation, for the year ending March next year to minus 0.4 percent, from an April forecast of minus 0.5 percent.
For the following fiscal year, it kept its forecast unchanged at 0.1 percent. Inflation could rise more than expected if there is higher demand from emerging economies, the bank said.
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