By Shigeo Kodama

TOKYO (MNI) – Japan’s government is expected to revise down its
official forecast for economic growth for this fiscal year to somewhere
between zero and 0.3% from its December projection for a 1.5% real
growth rate, a former senior government researcher said.

Takao Komine, a professor of economics at Hosei University in
Tokyo, also noted that the consensus call for fiscal 2011 GDP among
economists is for +0.1%.

He was director of the Research Bureau of the then Economic
Planning Agency (now the Cabinet Office) from 1999 to 2001.

The government plans to update its growth and inflation outlook for
fiscal 2011 in July.

A sharp downward revision is expected as the March 11 earthquake
disaster is seen depressing GDP in April-June for a third consecutive
quarterly decline following an annualized 3.5% contraction in
January-March.

Economic and Fiscal Policy Minister Kaoru Yosano said last week
that there is “no major gap” between the government’s economic growth
outlook and forecasts by private-sector economists, suggesting that the
government will sharply revise down its official projection.

According to the latest survey of 43 economists conducted between
May 25 and June 1 by the Cabinet Office’s Economic Planning Association,
economists’ growth estimate for fiscal 2011 ending March 2012 averaged
+0.1% from a year earlier.

Komine said forecasts by himself and other economists are based on
an optimistic scenario, in which the economy will show high
quarter-to-quarter growth in and after July-September, supported by
strong demand for reconstruction of quake-hit northeastern regions.

Economists forecast GDP will register high growth of an annualized
+4.0% in Q3, +5.2% in Q4 and +3.8% in Q1 of 2012, after showing an
estimated drop of 3.0% in Q2, Komine noted.

As for fiscal 2012 GDP, Komine said, “I wouldn’t be surprised if it
grew near 3%.”

Economists on average expect the economy to grow at 2.9% in the
next fiscal year.

If GDP shows a strong gain in January-March 2012, which is the last
quarter of the current fiscal year, the growth rate in the next fiscal
year would be pushed up by a high positive carryover from fiscal 2011.

By contrast, the negative carryover into this fiscal year from
fiscal 2010 stood at -0.6%, meaning real GDP would show a 0.6%
contraction if it were unchanged from the previous year, according to
the Cabinet Office.

Meanwhile, the Bank of Japan board is also expected to lower its
fiscal 2011 GDP forecast for +0.6% provided in April to around zero
growth in line with private-sector projections.

The BOJ was unable to factor in Q1 GDP, which was released after
the BOJ presented its medium-term growth and inflation forecasts in its
semi-annual Outlook Report on April 28.

The BOJ board will provide an update to its GDP and CPI projections
at the next policy-setting meeting slated for July 11-12.

Economists on average have revised down their fiscal 2011 GDP
forecasts to +0.1% from +0.3% after the Q1 GDP came in weaker than
expected, contracting a preliminary 0.9% quarter-on-quarter, or an
annualized pace of 3.7%.

Later the annualized contraction was revised up to -3.5% while the
q/q figure was unrevised.

“The economy is unlikely to enter a downturn,” said Komine, noting
that it is expected to recover quickly from severe damage to production
facilities and the breakdown of supply chains for cars and electronics
that were triggered by the March 11 earthquake.

The current economic expansion cycle began in April 2009.

Industrial production, which is seen as a coincident indicator of
the economy, is likely to recover to pre-quake levels around July,
Komine predicted.

According to the latest survey of firms conducted by the Ministry
of Economy, Trade and Industry, production is expected to rise 8.0% in
May from April and further by 7.7% in June. It rebounded 1.6% in April
after posting a record 15.5% drop in March.

If this forecast is met, the reading for June output will rise to
97.6 (against 100.0 for the 2005 base year), just under 97.9 marked in
February, Komine said.

skodama@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4838 **

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