Economists from Nomura Holdings Inc. to BNP Paribas SA lowered their forecasts for the economy this week, making the central bank’s growth outlook for this year look increasingly optimistic.
The trigger—a second-quarter contraction reported on Monday—also led Bank of America Corp. and NLI Research Institute to trim their projections for the fiscal year through March 2016. The world’s third-biggest economy is now set to grow 1.2% over the 12 months, according to the median of 13 estimates from economists, less than the 1.7% forecast by the Bank of Japan, Bloomberg reported.
The upshot is likely to be the BOJ reducing its growth outlook when it provides updated projections on Oct. 30, fanning speculation for another boost in monetary stimulus. Slower growth would add to headwinds for the central bank, as declines in the price of oil and other commodities dim prospects for the pickup in inflation.
“Lowering its growth forecast will put the BOJ in an even tougher position,” said Masamichi Adachi, an economist at JPMorgan and former BOJ official. “Bets on further stimulus will increase as risks to the BOJ’s inflation target are clearly rising.”
A survey of 37 economists from July 27 to Aug. 3 showed 12 forecasting an increase in stimulus at the Oct. 30 policy board meeting, when the BOJ will release its latest estimates for growth and inflation.
Even with a sizable reduction in its economic forecast, the BOJ may choose to maintain the current pace of asset purchases, said Adachi, noting that the economy would still be performing above its 0.5% growth potential, stoking price pressures as demand catches up with supply.
