BoJ Cuts Economy Growth View, Keeps Inflation Target

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BoJ cut GDP growth expectations

TOKYO, (AFP) – Bank of Japan (BoJ) policymakers on Wednesday cut their economic growth expectations, as tepid data and a sales tax rise fuel fears about the strength of the nation’s recovery.
The downgraded forecasts are likely to boost speculation of more monetary easing, with the BoJ’s chief saying he would “not hesitate” to unleash further measures as the bank chases an inflation target seen as key to reversing years of falling prices and lacklustre growth.
The comments from central bank governor Haruhiko Kuroda came after the BoJ held fire on expanding its massive stimulus drive following a one-day policy meeting Wednesday.
“There is no change to our stance that we would not hesitate to make adjustments to achieve the 2.0 percent inflation target if risk factors change our outlook,” he told reporters in Tokyo.
The BoJ’s price target — and the massive easing campaign launched last year — is a cornerstone of Prime Minister Shinzo Abe’s wider bid to drag the country out of years of deflation.
Kuroda — hand-picked by Abe to help steer his growth bid — has said the economy was pushing ahead despite fears that the April 1 tax rise would dampen consumer spending.
On Wednesday, the BoJ pointed to slowing exports as it said the world’s number three economy would expand by 1.1 percent in the fiscal year to next March, down from an earlier 1.4 percent forecast, according to a semi-annual report which gauges the median of members’ views.
However, expectations that inflation would come in at 1.3 percent over the same time period were unchanged.
The report was seen as a key measure of whether the BoJ still thinks it can stoke lasting inflation, but there are doubts among a growing number of observers, who said the bank would be forced further to expand its monetary easing to counter a downturn in the economy.
“I wonder how they would explain the price increase while revising down the growth forecast,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“This gives me an impression that the inflation figures are artificially crafted.”
Prices tend to increase as demand for goods strengthens, boosting the wider economy.    
– ‘Worsening outlook’ –
Earlier Wednesday, fresh data showed Japan’s factory output rose a weaker than expected 0.3 percent in March, and producers pointed to weakness over the coming months.
The factory output figures came after a 2.3 percent month-on-month fall in February industrial production, highlighting an uneven recovery in Japan’s economy.
“The manufacturing PMI (purchasing managers’ index) suggests that output will fall sharply following the consumption tax hike,” said London-based Capital Economics, adding that “the manufacturing sector had already lost momentum well before the sales tax hike kicked in”.
Producers’ confidence stumbled as a survey accompanying the data showed they expected factory output to shrink 1.4 percent in April and inch up just 0.1 percent in May.
Separately, confidence among small businesses dropped following the April 1 tax rise — Japan’s first in 17 years — which is seen as crucial to taming its huge national debt.
However, over the January-March quarter, Japan’s factory output was better, growing 2.8 percent, and offering hope that overall economic growth will beat a weak reading in the last quarter of 2013, analysts said.
Japanese GDP growth “likely accelerated in the first quarter after the anaemic 0.2 percent quarter-on-quarter gain in the fourth quarter, especially since private consumption should be particularly buoyant”, Capital Economics said. “But the outlook has worsened.”
Retail sales got a strong boost ahead of the tax rise as shoppers made a last-minute dash to buy staples and big-ticket items such as cars and refrigerators. The last tax increase in 1997 was followed by years of deflation and tepid economic growth.
But “if we compare the current situation with the previous tax hike… companies are coping with the policy change better so manufacturing output and the economy should improve,” said Yuki Endo, an economist at Hamagin Research Institute.

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