TOKYO (MNI) – Economists turned more optimistic in July about the
outlook for Japan’s growth and inflation compared with the previous
month, the latest monthly survey by the Cabinet Office’s Economic
Planning Association released on Monday showed.

The ESP survey showed that economists on average have revised up
their GDP forecasts for the April-June quarter to an annualized 2.95%
drop from the 2.97% contraction projected last month.

Projections were also revised up for calendar Q3 (to +4.26% from
+4.04%) but revised down for Q4 (to +5.07% from +5.24% in the previous
survey) this year.

Still, the average growth estimate for fiscal 2011 ending March
2012 was revised up to +0.18% from +0.10% projected last month, and the
forecast for fiscal 2012 was also revised up to +2.92% from +2.90%.

These private-sector fiscal year forecasts compared with the Bank
of Japan board’s median growth forecast of +0.6% in fiscal 2011 and
+2.9% in fiscal 2012 (this will be updated on Tuesday).

Economist forecasts in the July survey reflect better economic data
released recently.

Industrial output rose 5.7% m/m gain in May, after rising 1.6% in
April and marking a record drop of 15.5% in March, as manufacturers are
scrambling to fix production facilities and supply chain networks which
were wrecked by the March 11 earthquake disaster.

The trade ministry’s survey of manufacturers has indicated that
production will rises 5.3% in June and will increase further by 0.5% in
July.

Economists on average expect core CPI to drop only 0.03% in fiscal
2011 under the new 2010 base year and an updated basket of goods and
services to be put into effect by the government in August. This
estimate was revised upward from -0.06% in the previous survey.

Core CPI is seen declining again in fiscal 2012 by 0.12%, revised
upward from the 0.14% drop projected in the previous survey.

The latest median inflation projection by the nine-member BOJ board
calls for a core CPI gain of 0.7% in fiscal 2011 and again in 2012.
However, the BOJ estimate does not take into account the widely expected
dampening effect of the August data revision.

The ESP survey also showed that economists expect Japanese core CPI
under the new base year and formula will fall 0.07% on year in
April-June this year, unchanged from the previous survey. They also
forecast Q3 core CPI will rise 0.06% y/y, revised down slightly from the
previous +0.08%.

The survey also showed that the number of the economists who expect
the BOJ to ease credit further totaled nine, down from 13 in the
previous survey.

By contrast, economists expecting a credit tightening totaled 31,
up from 27 in the previous survey.

The association polled 43 economists and research institutions from
June 27 to July 4 for its ESP Forecast Survey, and 43 answered on the
growth and inflation outlook and 40 on the Bank of Japan’s monetary
policy stance.

The previous survey was conducted from May 25 to June 1.

tokyo@marketnews.com
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