TOKYO (MNI) – Japan’s deflationary pressure is likely to continue
through 2012, although the plunge in output caused by the March 11
disaster is likely to be reversed by a strong recovery in the second
half of 2011 buoyed by demand for reconstruction of quake-hit areas, the
Organization for Economic Cooperation and Development said Wednesday.
Besides public outlays, business and residential investment will
increase as firms and households replace fixed capital and housing
damaged in the disaster in and after the second half of 2011, the OECD
said.
But private consumption is expected to remain relatively subdued
during 2011, reflecting weak sentiment among households, it said.
These factors suggest the economy will grow at around 4.5% in the
second half of 2011. As public and private investment moderate following
the completion of the first supplementary budget worth Y4 trillion, the
growth may slow to near 1% by the end of 2012, leaving a large negative
output gap.
The OECD said Japan’s headline CPI, which is likely to be positive
in 2011 (+0.3% y/y) as a result of rises in energy and commodity prices,
may slip back into negative territory (-0.2%) in 2012.
Its forecast did not factor in Japan’s plan to switch the base year
of CPI to 2010 from 2005 and review its basket of goods and services
used for CPI data in August.
As for economic policies, a credible fiscal consolidation program,
with tax increases and spending cuts large enough to achieve the
government’s target of stabilizing the public debt ratio by 2020, is a
priority, the OECD said, adding that the Bank of Japan should maintain
its very accommodative monetary policy stance until underlying inflation
becomes firmly positive.
skodama@marketnews.com
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