The Bank of Japan today cut its economic growth forecast and predicted that inflation would accelerate in a report that omitted a reference to raising interest rates for the first time in two years.
Japan's economy will grow 1.5% in the year ending March 31st, less than an October estimate of 2.1%, the central bank said in its semi-annual outlook. Governor Masaaki Shirakawa and his six colleagues earlier today left the key lending rate at 0.5%.
The Bank said that Japan's economic growth is slowing, mainly due to the effects of high energy and materials prices. Compared with the projection in the October 2007 Outlook for Economic Activity
and Prices (Outlook Report), housing investment and business fixed investment have been weaker than expected while exports have been stronger. As a result, the rate of real GDP growth in fiscal 2007 seems likely to be around the potential growth rate,2 as projected in the October Outlook Report.
The Bank said that from fiscal 2008 through fiscal 2009, the economy is likely to continue its moderate growth at a pace around the potential growth rate. In the first half of fiscal 2008, while housing investment is expected to recover gradually, deceleration in the economy seems likely to continue due mainly to the slowdown in overseas economies, especially the United States, and the effects of high energy and materials prices. Thereafter, the growth rate is likely to pick up gradually, as overseas economies are expected to move out of their deceleration phase and the effects of high energy and materials prices are likely to abate. As a result, the rate of real GDP growth for fiscal 2008 is likely to register around 1.5 percent, lower than the previous projection. The growth rate for fiscal 2009 is expected to be in the range around 1.5-2.0 percent. There are, however, downside risks to the economy stemming from uncertainties regarding future developments in overseas economies and global financial markets as well as the effects of high energy and materials prices.
Outlook Report
