Japan expects real 1.5% growth in fiscal 2015 as economy bounces back

[TOKYO] Japan's government expects the economy to grow 1.5 per cent in fiscal 2015 after adjustments for price moves, a slight upgrade from its previous forecast, due to an expected acceleration in consumer spending.

The government forecast overall consumer prices to rise only 1.4 per cent in fiscal 2015 in a sign of the difficulty the Bank of Japan faces in meeting its 2 per cent inflation target.

Prime Minister Shinzo Abe's cabinet will use these forecasts to guide its fiscal and economic policies as the government tries to accelerate growth after a surprise recession last year.

The government previously forecast the economy would grow a real 1.4 per cent in the fiscal year starting from March, but it raised its forecast after delaying an increase in sales tax originally scheduled for October.

Economic growth is also expected to remain firm in fiscal 2015 as wages rise and a decline in oil prices supports corporate profits and consumer spending, according to a Cabinet Office official.

Japan's government expects the economy to grow a nominal 2.7 per cent in fiscal 2015, just below its previous expectation of 2.8 per cent growth, according to forecasts that the cabinet approved on Monday.

For fiscal 2014, which ends in March, the government expects the economy to contract a real 0.5 per cent, which is a downgrade from its previous forecast for 1.2 per cent real growth, as consumer spending slumped.

Japan's economy slipped into recession last year as households cut back on spending after the government raised the sales tax to 8 per cent from 5 per cent in April. Many economists say Japan returned to growth toward the end of last year as exports and corporate investment picked up.

The BOJ has been buying government bonds and other risk assets to depress yields and push inflation to 2 per cent sometime around fiscal 2015.

The government's forecast that inflation will only reach 1.4 per cent in fiscal 2015 shows that a recent collapse in oil prices to the lowest since 2009 is not beneficial to the central bank's monetary policy in the short term.

REUTERS