A customer looks at a display of used mobile phones in Iosys Corp’s shop at Akihabara electronics district in Tokyo, Japan Oct 28, 2022. REUTERS/Kim Kyung-Hoon/File photo
TOKYO – Japan’s government revised up on Thursday its growth forecast for the next fiscal year on prospects for higher business expenditure and substantial wage hikes that are seen underpinning consumption.
The upgraded projections, which provide a basis for the government’s annual budget plan due on Friday, underscore how Japan is set to buck a global growth slowdown thanks to robust domestic demand supported by inbound tourism reopening.
“Private sector demands will drive growth in fiscal 2023,” the government said in a statement, although warning of downside risks from an overseas economic slowdown, inflation, supply bottlenecks and market fluctuations.
Japan’s real gross domestic product (GDP) is expected to expand 1.5 percent in the fiscal year beginning in April 2023, the government said in its new semi-annual projection, up from 1.1 percent in the previous forecast made in July.
The official forecast was much higher than economists’ median estimate of a 1.1-percent expansion in a recent Reuters poll.
The size of nominal GDP will likely reach 560.2 trillion yen ($4.25 trillion) in fiscal 2022 and 571.9 trillion yen in fiscal 2023, to hit fresh records for two consecutive years, exceeding the pre-pandemic level seen in 2019, the estimate showed.
The government left its overall consumer price index (CPI) forecast for fiscal 2023 unchanged at an 1.7-percent increase from the July projection, pointing to the government subsidies to curb gasoline and utility bills and offset the rising living costs from higher import prices.
The government’s estimate underscores its hope that companies will increase wages next year to make up for the rising expenses due to higher commodity and import costs.
Japanese real wages have been falling for seven months since April as consumer inflation has recently surged to 40-year-high levels, well above the Bank of Japan’s (BOJ) 2 percent target.
The government and the BOJ have repeatedly called for higher pay hikes as a key to Japan’s post-pandemic economic growth with sustainable price inflation.
For the current fiscal 2022, the government cut its growth to an 1.7-percent expansion from a 2-percent increase projected in July, due to a bigger-than-expected decline in overseas demand. Meanwhile, it raised its consumer inflation forecast to a 3-percent increase from 2.6 percent seen in July.
Higher wage growth and a sustained solid economic recovery are crucial to how quickly the BOJ can unwind its massive monetary stimulus. On Tuesday, the BOJ stunned markets by announcing a surprise tweak to its long-term yield cap – a move some analysts saw as a prelude to an exit from ultra-easy policy.
($1 = 131.7700 yen)