— Adds Minister Comments, Background in Paragraphs 8-13
— Japan Govt: FY12 Real GDP Forecast Unchanged at +2.2%
— Japan Govt: FY12 Nominal GDP Fcast Revised To +1.9% Vs +2.0%
— Japan Govt: Expect FY13 Total CPI To Rise 0.5%
— Japan Govt: FY12 Total CPI Forecast Revised +0.2% VS +0.1%

TOKYO (MNI) – Japan’s government expects the economy to grow 1.7%
in real terms in fiscal 2013 while forecasting a slightly higher 1.9%
rise in nominal terms, indicating deflationary pressures will ease
further next year, the Cabinet Office said on Friday.

That would be the first time that nominal GDP growth will exceed
inflation-adjusted growth since fiscal 1997, when the sales tax was
hiked to the current 5% rate from 3%.

The Bank of Japan board’s median forecast for real GDP in fiscal
2013 is also at +1.7%. The BOJ does not provide nominal GDP forecasts.

The government left its real GDP forecast for fiscal 2012 unchanged
at +2.2% but lowered its nominal GDP projection to +1.9% from its
January estimate of +2.0%.

Meanwhile, the government forecast that total CPI will rise 0.5% in
fiscal 2013. It revised up its projection for the current fiscal year to
+0.2% from its earlier forecast for +0.1%.

The BOJ has forecast that core CPI (total minus perishables) will
rise 0.7% in fiscal 2013 after rising 0.2% this fiscal year.

The Cabinet Office said personal consumption will lead the fiscal
2013 GDP growth thanks to continued demand for rebuilding disaster-hit
area and improvement in employment.

Economic and Fiscal Policy Minister Motohisa Furukawa told
reporters that rush spending is estimated to push up Japan’s fiscal 2013
GDP by 0.6 percentage point ahead of the planned sales tax hike to 8% in
April 2014 from the current 5%.

“According to our past experience, a consumption tax hike by 1
percentage point would push up GDP by 0.2% point (in the previous
year).”

In fiscal 1996, Japan’s economy expanded by 2.7% before the sales
tax hike on April 1997.

But the economy slowed sharply to +0.1% growth in fiscal 1997, when
the Asian financial crisis broke out, and contracted by 1.5% in fiscal
1998, hit by unresolved bad loans at many Japanese financial
institutions.

Last week, parliament enacted by majority vote legislation that
would double the current 5% sales tax by 2015 and improve social
security services on condition that the economy continues to recover
steadily.

In June the ruling coalition reached an agreement with the two main
opposition parties to hike the current 5% consumption tax rate to 8% in
April 2014 and to 10% in October 2015 on condition that the economy is
growing roughly at a real 2% at the time.

Economists on average project a 1.64% rise in real GDP in fiscal
2013, which is largely in line with the government forecast, according
to the latest monthly survey by the Japan Center for Economic Research.

But they forecast only a 1.40% rise in nominal GDP, lower than the
government projection for +1.9%.

The Cabinet Office called for a close watch on downside risks to
its forecast: fluctuations in financial markets and slower overseas
economies caused by the European sovereign debt crisis, the yen’s
appreciation and possible power supply constraints.

Domestic demand will push up fiscal 2013 GDP by 1.4 percentage
points while net exports — exports minus imports — will add 0.3
percentage point, the government said.

Private-sector demand will add 1.7 percentage points to FY 2013 GDP
while public-sector demand will trim 0.3 percentage point, it said.

Other details of the government’s FY 2013 real GDP forecast:

— Private consumption: +1.6% in fiscal 2013 vs. revised +1.7% in
fiscal 2012.

— Private-sector capital investment: +3.8% in fiscal 2013 vs.
revised +3.5% in fiscal 2012.

— Housing investment: +5.1% in fiscal 2013 vs. revised +2.8% in
fiscal 2012.

— GDP deflator: +0.2% y/y in fiscal 2013 vs. revised -0.3% in
fiscal 2012.

The government forecast is based on the assumption that the global
economy will grow 2.7% in the current fiscal year and 3.1% in fiscal
2013, the dollar will average Y79.3 in fiscal 2012 and Y79.0 in fiscal
2013, and imported crude oil prices will average $109.4 a barrel in
fiscal 2012 and $105.3 in fiscal 2013.

tkeditorial@marketnews.com
** MNI Tokyo Newsroom: 81-3-5403-4838 **

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