Japan’s government has cut this year’s economic growth forecast but expects inflation to sharply exceed the central bank’s 2% target in new projections released Thursday, acknowledging growing signs of change in the country’s deflationary mindset.
The estimates come ahead of a Bank of Japan policy meeting next week, set to be closely watched, when the board will produce fresh quarterly forecasts and debate how much progress the economy is making in sustainably meeting its 2% price target.
“Japan’s economy is recovering moderately” with positive signs emerging, such as steady wage hikes and strong corporate spending appetite, Prime Minister Fumio Kishida said.
“It’s important to ensure Japan makes steady progress in exiting deflation, and shifts to a society where wage hikes become a norm,” he told a meeting of the government’s top economic council on Thursday.
In a mid-year review of its forecasts, the government expects the economy to expand 1.3% in the current fiscal year ending in March 2024, down from 1.5% projected in January, due to the hit to exports from slowing global demand.
But it also expects robust consumption and capital expenditure to underpin growth, projecting a 1.2% expansion in fiscal 2024.
Overall consumer inflation, which does not strip away any item, will likely hit 2.6% this fiscal year, the government said — higher than the 1.7% projected in January and exceeding the Bank of Japan’s 2% target.
The government expects that measure of inflation to hit 1.9% in fiscal 2024.
After more than two decades of deflation and stagnant wage growth, Japan has seen overall consumer inflation exceed the central bank’s 2% target for more than a year as firms continued to pass on rising raw material costs to households via price hikes.
Companies also offered pay hikes unseen in three decades at this year’s wage negotiations with unions, heightening market expectations of a tweak to the BOJ’s yield curve control policy that caps long-term interest rates at around zero.
BOJ Gov. Kazuo Ueda has brushed aside the likelihood of a near-term exit from ultraloose policy, arguing that the recent cost-driven rise in inflation must be replaced by price gains driven more by robust domestic demand and higher wage growth.
But an upgrade to its inflation forecasts will likely keep alive market expectations that Ueda will soon phase out his predecessor’s massive stimulus program.
In its most recent forecasts, made in April, the central bank expects core consumer inflation — which strips away the effect of fresh food costs — to hit 1.8% in the current fiscal year and 2.0% in the following year.
Fonte notizia: The Japan Times