Economic projections for fiscal 2001 made by the Bank of Japan’s Policy Board members range from a contraction of 0.1 percent to a growth of 1 percent, all of which are below the government’s 1.7 percent growth forecast.
Despite expectations that the global economic slowdown would bottom out during the first half of fiscal 2001, “it is likely that it will take time for the Japanese economy to exhibit a clear recovery,” says a semiannual report released Thursday.
The report compiles the outlook and risk assessment of the central bank’s nine Policy Board members.
One member forecast real gross domestic product would drop while one projected 1 percent growth while the others said it would grow between 0.3 and 0.8 percent.
All of the members predicted falling prices, with projections for the domestic wholesale price index ranging from a 1.5 percent drop to a 0.5 percent drop. Falls between 1 percent and 0.3 percent were forecast for the consumer price index. The government’s figures for the WPI and CPI are both positive — 0.4 percent and 0.2 percent.
The report, to be presented at the Group of Seven finance meeting, which begins Saturday in Washington, reveals the large gap between the BOJ’s assessment of the economy and the government’s.
The economy will remain “sluggish” amid a global economic slowdown for the first half of the fiscal year, due to drops in exports and production, the report says.
But even in the second half, while economies abroad are expected to bottom out and the yen’s fall since autumn is expected to raise exports and profits, the members’ outlook remains cautious.
“Persisting pressure on the economy” from the nation’s structural problems, such as banks’ nonperforming loans and corporations’ massive debts, is likely to prevent firms from increasing employment and investment, the report says.
Despite declines in production, however, the gap between excess supply and declining demand is expected to widen during fiscal 2001 and is “unlikely to begin narrowing until fiscal 2002,” resulting in members’ projections of continuing price falls.
The report raises several factors that would change the members’ assessments: developments in the U.S. economy and in information technology markets, stock and land price declines, the effects of structural reform, and public uncertainty about the future and its effects on household spending.
While the report cites middle to long-term benefits such as increased productivity from structural reform, it calls for attention to short-term rises in corporate bankruptcies and unemployment from aggressive disposal of banks’ nonperforming loans.
On public uncertainty, the report says that if concerns about expanding fiscal deficit and delays in nonperforming loan disposal intensify, this may deteriorate consumer sentiment and cause long-term interest rates to rise.
Despite the central bank’s monetary easing measures, which have driven short-term interest rates down to record lows, BOJ policy members said in the report that they did not expect bank lending to rise.
“Firms are keeping their capital spending below their cash flow and are continuing to reduce debt,” the report says.
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