2% inflation target out of reach, think tanks say

JIJI

Think tanks agree it will be difficult for the Bank of Japan to attain its 2 percent inflation target in about two years, with the nation’s economic growth seen slowing down markedly in fiscal 2014 after the planned consumption tax hike.

The average estimate among 11 think tanks on real gross domestic product growth for fiscal 2013, which ends in March 2014, stands at 2.7 percent. Their estimates of year-on-year growth in the core consumer price index excluding fresh foods average 0.3 percent for the same year.

The rosy GDP projection reflects higher stock prices and the yen’s weakening backed by Prime Minister Shinzo Abe’s economic policy, dubbed “Abenomics,” and an expected surge in demand ahead of the consumption tax hike to 8 percent next April from 5 percent at present.

The government is keeping a close watch on the economy’s April-June performance to help decide if the tax hike should be implemented as scheduled.

For the first quarter of fiscal 2013, the 11 think tanks expect the economy to perform strongly, with the average estimate among them on annualized quarter-on-quarter real GDP growth coming to 2.9 percent.

“The consumption tax hike is highly likely to be carried out as scheduled,” an official at SMBC Nikko Securities Inc. said.

But the think tanks project that the real GDP growth will slow down in fiscal 2014 following the tax increase, with their average estimate standing at 0.5 percent.

With demand for goods and services seen weakening, the 11 think tanks on average expect the core CPI to grow only 0.6 percent in fiscal 2014, which ends in March 2015, excluding the effects of the tax hike.