Exclusive: Japan government to cut inflation forecasts, gloomier on outlook than BOJ

Tue Jul 12, 2016 6:30am EDT
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By Takashi Umekawa and Leika Kihara

TOKYO (Reuters) - Japan's government is expected to cut its consumer inflation forecast for the current fiscal year and produce an estimate for fiscal 2017 that is much lower than the central bank's 2 percent target, government sources told Reuters on Tuesday.

The gloomy government assessment may add to market doubts over the Bank of Japan's optimistic price forecasts and step up pressure on the central bank to expand stimulus this month as it struggles to fend off deflationary risks.

In draft forecasts to be finalised at a cabinet meeting on Wednesday, the government projects consumer inflation of 0.4 percent for the current fiscal year ending in March 2017, down from 1.2 percent projected in January, the sources said.

The downgrade likely reflects weaker-than-expected economic growth and the impact of external factors such as slumping oil prices and the strong yen, which is pushing down import costs.

Sources said the government projects consumer inflation of 1.4 percent for fiscal 2017, well below the 2 percent target the BOJ says will be met during that year.

The government was not immediately available for comment.

Markets are simmering with speculation that the BOJ will cut its inflation forecasts and expand its already massive stimulus program at a rate review on July 28-29, as a hit to exports from a strong yen and weak consumption have added to downward pressure on the economy and prices.

Visiting former U.S. Federal Reserve Chairman Ben Bernanke told Prime Minister Shinzo Abe on Tuesday that the BOJ still had tools left available to beat deflation.   Continued...

A shopper (L) checks items inside a shoes shop at Shibuya shopping and amusement district in Tokyo, Japan, June 2, 2016. REUTERS/Issei Kato