BOJ to stay bullish on prices even as it cuts Japan GDP estimate: sources

Tue Aug 26, 2014 7:19am EDT
 
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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - The Bank of Japan is likely to keep its bullish inflation outlook even as it cuts its economic growth forecast for this fiscal year in an October report, sources said, suggesting that the bank will not ease policy further at least until the end of 2014.

But central bankers are hardly complacent as they remain concerned about the outlook for exports, a soft spot in the economy that has failed to pick up despite the boost from a weak yen that gives Japanese goods a competitive advantage overseas.

Japan's government kept its economic assessment unchanged at its monthly report on Tuesday, saying the world's third largest economy is "expected to recover moderately" as the effect of a sales tax hike in April eases gradually.

But it turned slightly more cautious about factory output, which in June posted its biggest decline in more than three years due partly to weak overseas demand.

Japan's economy contracted a hefty 6.8 percent in the second quarter due largely to the tax-hike pain, prompting many private-sector analysts to downgrade their growth forecasts for the year ending in March to around 0.5 percent, just half the 1.0 percent expansion estimated by the BOJ in July.

The central bank is seen cutting its GDP estimate for the current fiscal year, which ends in March, when it next updates its economic and consumer price forecasts in a semi-annual review on Oct. 31. But any downgrade will be minor and unlikely to greatly affect its bullish projections for inflation to climb near 2 percent next fiscal year, people familiar with its thinking say.

BASIC SCENARIO STAYS   Continued...

 
A pedestrian holding an umbrella to take shelter from rain and hail walks past the Bank of Japan headquarters building in Tokyo December 20, 2013. REUTERS/Yuya Shino