— Japan Govt Forecast: FY2011 Nominal GDP +1.0% Y/Y
— Japan Revises FY10 Real GDP Forecast To +3.1% From +2.6%
— Japan Revises FY10 TOTAL CPI Forecast To -0.6% From -0.9%

TOKYO (MNI) – The Japanese government on Wednesday forecast that
the nation’s economy will grow a real 1.5% in fiscal 2011 that starts
next April, with the growth rate decelerating from an estimated +3.1% in
the current fiscal year.

The GDP forecast for fiscal 2010 was revised up from an earlier
projection of +2.6%.

In fiscal 2011, the economy should “pick up” and move toward a
positive business economic cycle, supported by a gradual recovery in the
global economy and a series of government fiscal stimulus measures, a
Cabinet Office official told reporters.

The latest economic outlook includes the effects of the proposed
business tax cut by 5 percentage points but the government cannot
quantify its impact, he said.

Amid lingering deflationary pressure, the government forecast
consumer prices will show no change in fiscal 2011 from the previous
year, after showing declines in the previous two years.

Total CPI is estimated by the government to fall -0.6% in fiscal
2010, revised upward from the previous outlook of -0.9%.

The latest CPI forecast factored in the government stimulative
measure to provide free high school education from April 2010, which
will push down prices compared to year-earlier levels until March 2011.
The Cabinet Office estimates that this measure will depress total CPI in
the current fiscal year by 0.5 percentage point.

But the CPI forecast does not include an expected downward revision
to recent past price data next August, when the government updates the
base year to 2010 from 2005 and reviews the basket of goods and services
used for calculating the main consumer price measure.

Economists expect the revamp in the data to push down the
year-on-year change in CPI by 0.4 to 0.5 percentage point.

The GDP and CPI forecasts will be used for estimating how much
fiscal stimulus the government should prepare for fiscal 2011 in order
to continue fighting deflation while guiding the economy towards a
sustained recovery track.

The government of Prime Minister Naoto Kan, who took office in
June, will draft the national budget for fiscal 2011 later this week and
send it to parliament for approval during its 150-day session to be
called next month.

The Bank of Japan has already presented its own projection for the
next fiscal year, with the +1.8% median GDP forecast by its nine-member
policy board.

It is above private-sector forecasts because BOJ policymakers
factor in expected stimulative effects of the bank’s “comprehensive”
credit easing that comprises keeping super-low interest rates, making
low-interest loans to banks that are lending to growth areas, and
injecting additional liquidity by buying certain financial assets from
the markets.

The latest monthly survey of 42 private sector economists by the
Cabinet Office’s Economic Planning Association showed an average GDP
forecast of +1.29% for the next fiscal year.

The negative output gap — excess capacity vs. slack demand —
stood at -3.1% in the July-September quarter of 2010, improving
gradually since hitting an all-time high of -9.3% in the first quarter
of 2009, according to the latest estimate by the Cabinet Office.

The BOJ board forecast the core CPI (excluding fresh food) will
rise 0.1% on year in fiscal 2011.

The Cabinet Office official said he could not say at what point
consumer prices would show a year-on-year rise during fiscal 2011.

In the government forecast, domestic demand will contribute a full
percentage point to fiscal 2011 GDP, while overseas demand will push
it up by 0.5 percentage point.

Other details in real GDP forecasts by the government:

— Private consumption: +0.6% in fiscal 2011 vs +1.5% in fiscal
2010. It will contribute +0.4 percentage point to fiscal 2011 GDP.

— Private-sector capital investment: +4.2% vs. +4.9%. It will
contribute +0.6 percentage point.

— Housing investment: +5.4% vs. +0.1%. It will contribute +0.1
percentage point.

In nominal terms, the government expects GDP to rise 1.0% in fiscal
2011 after an estimated 1.1% rise in fiscal 2010.

Nominal GDP growth will be lower than that in real GDP for the 12th
straight year since fiscal 2000.

The government forecasts for fiscal 2011 are based on the
assumption that the U.S. dollar-yen exchange rate will average Y82.4,
imported crude oil prices will average $86.6 a barrel, and the world
economy will grow at +3.2%.

tokyo@marketnews.com
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