While deflation will slow, the economy is unlikely to move forward beyond a snail’s pace through fiscal 2004, the Bank of Japan said Friday.

All but one member of the BOJ Policy Board forecast that prices would continue their four-year slide over the next year and a half.

Eight of the nine projections issued by members for the consumer price index, excluding fresh food, ranged between minus 0.3 percent and minus 0.1 percent on a year-on-year basis for fiscal 2003, while the range for fiscal 2004 was between minus 0.5 percent and minus 0.2 percent.

One unidentified member predicted that price levels would remain the same in fiscal 2003 and that inflation would begin in fiscal 2004, logging a 0.5 percent rise on a year-on-year basis.

“We are cautiously optimistic,” BOJ Gov. Toshihiko Fukui said.

The report is released twice a year, outlining Policy Board members’ medium-term outlook for the economy.

“There are some bright spots in the economy, but we are by no means resting easy . . . the economy will be moving forward at an extremely slow pace.”

Thanks largely to growth in the U.S. and East Asian economies, Japan’s economy will gain momentum toward recovery in the bottom half of the business year and continue to do so through fiscal 2004, the BOJ report says.

But this recovery lies primarily among large manufacturers, the report notes. Other companies remain mired down by excess debt and workers, while private consumption is likely to remain stalled, it says.

All members projected positive growth in real gross domestic product for fiscal 2003 and fiscal 2004, with each forecast ranging between 2.3 percent and 2.7 percent growth for fiscal 2003 and 2 percent and 2.8 percent growth for fiscal 2004.

Members added, however, that GDP numbers, tallied at the Cabinet Office, tend to be inflated. Due to the calculation methods used, real GDP tends to be pushed up by price falls that are the result of technological innovation.

The numbers assume that BOJ monetary policy remains the same.

The report lists four major reasons that Policy Board members’ forecasts might err: developments in overseas markets, movements on financial markets, the progress of banks in disposing of their problem loans, and future developments in domestic private demand.

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.