Japan yesterday nearly doubled its economic growth forecast, as it adopted a long-term overhaul designed to slash the highest levels of debt in the industrialized world.
The Cabinet Office said it expects the economy to grow about 2.6 percent for the year to March next year, from an earlier projection of 1.4 percent.
That would see Japan achieve expansion of more than 2 percent for the first time since 2006, it said. For the fiscal year to March 2012, the government forecast 2 percent growth.
“Thanks to the government’s stimulus packages, strengthening in business profitability and improvements in employment and household income are spreading to an increase in private demand,” the Cabinet Office said.
“If this cycle continues, Japan’s economy is expected to go on a track towards an autonomous recovery,” it said in a twice-yearly report.
However, it warned that “continuing efforts to tackle deflation are necessary,” with the overall consumer price index not expected to stop falling before the next fiscal year. Prices in this fiscal are expected to drop 0.9 percent.
The relatively positive outlook comes as booming overseas demand for cars, high-tech products and factory parts combine with a stimulus-driven domestic picture, raising hopes Japan may eventually see a self-sustaining recovery.
A fourth straight quarter of expansion saw GDP in the January-March period grow at an annualized 5 percent.
Separately, the government unveiled a long-term fiscal management policy that aims to achieve a primary balance surplus in fiscal 2020 in a bid to avoid a Greece-style debt crisis.
Achieving surplus in the primary balance — the budgetary balance excluding debt servicing costs and revenue from bond issuance — is key to efforts to eventually curb government debt.
Japan’s primary balance in this fiscal year is expected to show a loss of ¥30.8 trillion (US$338 billion).
Japanese Prime Minister Naoto Kan pledged earlier this month an ambitious overhaul to reduce the country’s massive public debt, which at about 200 percent of GDP is the highest level of any industrialized nation.
Under the latest policy, the government will set the cap on new government bond issuance in the next fiscal year below ¥44 trillion, the level planned for the current year from April.
In the next three years to fiscal 2013, the government plans to cap budget spending below about ¥71 trillion, the level also planned for the current fiscal year from April.
“I’m confident we can win the confidence of the markets” with this plan, economy and consumer affairs minister Satoshi Arai said.
“I want to be clear that our country is in a different situation to Greece and Hungary,” Arai said, citing Japan’s current account surplus and large financial assets.
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