Japan’s central bank on Wednesday cut its annual growth and inflation forecasts for the world’s third-largest economy, with analysts warning weaknesses remained and the downgrade hinted at a disappointing second quarter. After a two-day policy meeting, the Bank of Japan (BoJ) said Japan’s economy would expand 1.7 per cent in the fiscal year to March 2016 while inflation would come in at 0.7 per cent, reports AFP. That was down from 2.0 per cent and 0.8 per cent, respectively, estimated earlier this year. While the bank kept up its view that Japan’s economy was “expected to continue recovering moderately”, it acknowledged that a pick-up in exports and industrial production had seen “some fluctuations”. Hideo Kumano, senior economist at Dai-ichi Life Research Institute, said trimming the growth forecasts “probably means growth in the April-June quarter was not very good”. Official second-quarter GDP data are due next month. BoJ policymakers have been scaling back their expectations and governor Haruhiko Kuroda has conceded that an ambitious 2.0 per cent inflation target was still some way off. Kuroda will hold a regular post-meeting news briefing later Wednesday. The economy expanded 1.0 per cent in January-March after limping out of recession in the last three months of 2014, and business confidence remains strong. But consumer spending has struggled after a sales tax rise last year and economists widely expect the BoJ to ramp up its easing programme, likely later this year, to bring Japan closer to its inflation target. The target is a cornerstone of Prime Minister Shinzo Abe’s drive to conquer years of stagnant or falling prices and revive the economy. On Wednesday, the BoJ stood pat on its record asset-purchase programme, which is pumping about 80 trillion yen ($648 billion) into the financial system annually in a bid to jack up prices and kickstart growth. “The Bank’s view on the economy remains too optimistic. Economic activity weakened sharply in the second quarter, and business surveys suggest that output will not rebound rapidly in coming months,” Marcel Thieliant from Capital Economics said in a commentary. “Price pressures are unlikely to strengthen as quickly as policymakers hope.” While a weak yen has boosted the bottom line for many Japanese exporters, Tokyo’s bid to resuscitate the economy has struggled as it tries to rid Japanese consumers of the idea that prices will not rise much. Deflation may sound good for shoppers, but it means people tend to put off buying because they do not expect prices to rise and hope they might even get goods cheaper down the line.
