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TOKYO (MNI) – Economists have revised up their forecasts for
Japan’s economic growth for the next couple of years while projecting
slightly deeper-than-expected price drops through mid-2011 and a smaller
decline afterward, according to the latest monthly survey by the Cabinet
Office’s Economic Planning Association released on Tuesday.

The survey showed economists on average expect Japan’s core
consumer price index to show a steeper year-on-year fall of 1.20% in the
January-March quarter of 2010 (vs. -1.13% in the previous survey), a
1.33% drop in April-June (vs. -1.26%), a 1.09% decline in July-September
(vs. -1.05%) and a 0.78% slip in October-December (vs. -0.77%).

Their projections were also revised down for first two quarters of
calendar 2011 but were revised up for the following three quarters
through Q1 of 2012, leading to a gradual improvement toward a rate just
under zero.

The average forecast by the economists for the core consumer price
index (excluding fresh food) for fiscal 2011 ending March 31, 2012 was
-0.22% y/y, more or less in line with the latest median projection by
the Bank of Japan’s policy board at -0.2%.

The association polled 42 economists and research institutions from
March 30 to Apr. 6 for its ESP Forecast, and 40 answered on the growth
and inflation outlook as well as the BOJ’s interest rate policy.

The previous forecast was conducted from Feb. 23 to March 2 and
released on March 9.

The latest survey showed that the economists on average predicted
that the core CPI will remain in negative territory for 13 straight
quarters from the first quarter of 2009 through the first quarter of
2012 (their quarterly forecasts beyond that period were not available).

The average forecast for the core CPI is -1.57% for fiscal 2009
just ended and -1.00% in the current fiscal year that began on April 1,
compared with -1.58% and -0.94% projected in the previous survey.

Japan’s core consumer inflation rate fell 1.2% in February, posting
the 12th straight year-on-year drop, after falling 1.3% in January.

Continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — led the price
drop, overwhelming a year-over-year rise in gasoline and heating oil
costs (lower utilities still kept overall energy costs down).

The survey also showed that economists expect Japan’s economy to
pick up the pace of its relatively gradual recovery from the global
recession.

The average forecast for real GDP was revised up to -2.32% from
-2.26% for fiscal 2009, and was also revised up to +1.81% from +1.66%
for fiscal 2010.

The economists polled expect real GDP in fiscal 2011 to grow by
1.79%, up from 1.72% forecast last month.

The BOJ board’ latest median forecast for real GDP unveiled in
January is +2.1% in fiscal 2011.

Japan’s economy expanded a real 0.9% in the October-December period
from the previous quarter, revised down slightly from a preliminary 1.1%
rise, as private-sector inventories and government spending turned out
to be smaller than initially estimated. On an annualized basis, GDP rose
3.8%, also revised down from a preliminary 4.6% growth.

The July-September 2009 figures were also revised down to a decline
of 0.1% q/q, or an annualized -0.6%, from the preliminary estimate of
near zero growth at +0.01% q/q. This changed the initial result that
Japan’s economy grew for the third straight quarter.

In the monthly survey, the association also asked economists when
they expect the BOJ to change its policy stance.

Of the 40 economists who provided their forecasts about one to two
weeks ago, 31 expect the BOJ to tighten its policy stance in or after
March 2011 and one person sees a credit-tightening in January 2011.

The forecasters are basically choosing the latest timing available
in the survey, which is in 12 months or later.

As many as eight economists forecast that the BOJ will loosen its
credit grip further: two said around April (this month), five said
around June and one said around December this year.

BOJ policymakers are saying the bank’s credit-easing measures have
helped lower borrowing costs for banks and thus funding costs for
companies. But they have also vowed to continue supporting the economy
with a practically zero interest rate and ample fund injections in
financial markets because it is expected to take some time to overcome
deflation.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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