Japan’s Economy Struggling to Meet Target
World Economy

Japan’s Economy Struggling to Meet Target

Japan’s economy is floundering and analysts polled by Reuters cut their annual growth forecast for a fifth straight month, saying there is no chance the Bank of Japan will meet its 2 percent inflation goal by the next fiscal year.
With demand still suffering from an April sales tax hike and disappointing factory output, most analysts expect the BOJ to ease policy further before the fiscal year ends in March. The majority expect that to happen early 2015.
The BOJ launched an unprecedented burst of monetary stimulus last April aimed at reflating the economy, pledging to double the monetary base to 270 trillion yen ($2.50 trillion) over two years, which has helped to send the yen down about 15 percent against the dollar.
But not a single economist polled said that it would succeed in getting inflation to the 2 percent target by fiscal 2015/16. It was last at 1.1 percent, without the tax hike effect.
Consumer price inflation without the April sales tax hike effect will probably rise 1.1 percent in this fiscal year and next, roughly in line with the previous survey.
But with oil prices falling sharply, all central banks are soon going to be faced with lower inflation, which is particularly worrying for the BOJ and the European Central Bank as deflation risks loom.
That means those inflation forecasts are likely going to be chopped in coming months.

The economy will grow just 0.2 percent for the fiscal year to March 2015, Reuters’ poll of 24 analysts showed, down from a 0.3 percent projection made last month and falling from a 1.0 percent growth forecast in May.
They project only 1.3 percent growth in the next fiscal year starting April 2015, with a slowdown from that in 2016/17 to 1.2 percent, unchanged from September’s poll.
During the third quarter, the economy probably rebounded an annualized 2.9 percent, according to the poll, but that would be less than a half of the 7.1 percent contraction in the second quarter, the biggest contraction since early 2009, after the sales tax hike bit harder than expected.
That also is a sharp downgrade from 3.6 percent growth forecast in the September Reuters poll. But economists expect 2.1 percent expansion in the fourth quarter, unchanged from last month’s projection.
Even with the prospect of economic stagnation, thanks in part to the April tax hike, a majority of analysts said they expect the government to proceed with plans for another sales tax hike next October.


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