BoJ cuts Japan growth estimates

2011-10-27 14:51:30

The Bank of Japan Thursday lowered its forecasts for growth in fiscal 2011 and 2012 and said the economy would remain in deflation for at least the next two years in a semi-annual report.

It cut its forecast for growth in fiscal 2011 to a median of 0.3 per cent from a July forecast of 0.4 per cent. For 2012 it lowered its forecast to 2.2 per cent, from an earlier 2.9 per cent.

The world's third-largest economy has contracted for three consecutive quarters, exacerbated by the March 11 earthquake and tsunami that left 20,000 dead or missing and caused massive industrial disruption.

The subsequent nuclear accident in Fukushima and the shutdown of the majority of Japan's atomic reactors in its wake has also led to power supply constraints that have complicated production schedules for companies.

Japanese firms have worked quickly to restore output to pre-disaster levels.

However, concerns are mounting that a strong yen, which erodes exporters' repatriated profits and makes exports less competitive, could undermine the recovery at a time when the global economy is slowing.

The BoJ warned that "an adverse effect from a slowdown in overseas economies and the appreciation of the yen will continue for the time being".

The Japanese unit on Wednesday hit a postwar high against the dollar of 75.71, with investors buying into the safe haven currency to escape market volatility induced by the eurozone crisis and worries over the US economy.

The Bank of Japan's policy board also expects the economy to remain in deflation for the next two years, according to the outlook report.

The nine-member board forecasts the core consumer price index, excluding volatile food items, to be flat in 2011, edge 0.1 per cent higher in 2012 and rise 0.5 per cent in 2013.

The figures remain below year-on-year growth of one per cent, the level it considers to indicate price stability. The central bank has made it clear it will maintain a virtually zero interest rate policy until price stability is in view.

Earlier the Bank of Japan announced further easing measures and voted unanimously to keep its key interest rate unchanged between zero and 0.1 per cent.

The BoJ policy board issues economic and price forecasts in April and October, and compares the actual outcomes with the projections in considering policy moves. It reviews those forecasts in January and July.