Japan’s govt cuts growth forecast, sees inflation exceeding BOJ target

A Japanese flag flutters on the Bank of Japan building in Tokyo, Japan, March 15, 2016. REUTERS/Toru Hanai/File photo

TOKYO  – Japan’s government cut this year’s economic growth forecast but expects inflation to sharply exceed the central bank’s 2-percent target in new projections released on Thursday, acknowledging growing signs of change in the country’s deflationary mindset.

In a mid-year review of its forecasts, the government expects the economy to expand 1.3 percent in the current fiscal year ending in March 2024, down from 1.5percent projected in January. It expects the economy to grow 1.2percent in fiscal 2024.

“While slowing exports will likely drag on growth, consumption is seen recovering mainly for services. Capital expenditure is also expected to increase,” the government said.

Overall consumer inflation, which does not strip away any item, will likely hit 2.6 percent this fiscal year, the government said, higher than 1.7 percent projected in January and exceeding the Bank of Japan’s 2 percent target.

READ: Japan’s inflation stays above BOJ target, key gauge hits 42-year high

The government expects inflation to hit 1.9 percent in fiscal 2024.

The estimates come ahead of the Bank of Japan’s closely watched policy meeting next week, when the board will produce its fresh quarterly forecasts and debate how much progress the economy is making in sustainably meeting its 2 percent price target.

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 percent in the current fiscal year and 2 percent in the following year.

BOJ Governor Kazuo Ueda has brushed aside the chance of a near-term exit from ultra-loose 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.

READ: BOJ policymaker calls for keeping low rates, focus on wages