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Bank of Japan officials are concerned that cooler-than-normal weather triggered by El Nino will curb spending this summer and weigh on an economic rebound after April’s sales tax increase, according to people familiar with the matter.

Bank officials are watching for potential weakening in consumer spending and sentiment that could add to other risks facing the economy, such as weak exports and political developments in Ukraine, according to the sources, who asked not to be named because the discussions were private. With an export recovery that could be gradual, the effects of El Nino require close monitoring, they said.

The Meteorological Agency this week forecast a 70 percent chance that El Nino will occur, the highest since its last occurrence in 2009, bringing lower temperatures that could continue through autumn. Dai-ichi Life Research Institute economist Toshihiro Nagahama sees a risk that cooler weather could reduce growth by as much as 0.9 points in the third quarter.

“We can’t rule out the potential that El Nino could cause unexpected damage to Japan’s economy,” Nagahama said. “This could affect the decision to raise the sales tax from October next year as the growth rate from July to September is critical for that judgment.”

Cold weather triggered by El Nino could depress consumer spending for summer clothes, air conditioners, beer and other beverages, weighing on growth, Nagahama said.

The risk for Prime Minister Shinzo Abe and the central bank is that the damage could sap strength from a bounce, in an economy forecast to return to growth in the third quarter after shrinking an annualized 3.3 percent this quarter due to the effects of the first sales tax hike, according to a May 2 to 8 survey of economists by Bloomberg News

The government, trying to contain the world’s biggest debt burden, raised the sales tax to 8 percent from 5 percent on April 1. It will base a decision on whether to go ahead with plans to complete its doubling to 10 percent next year on how resilient the economy is in the third quarter, according to economy minister Akira Amari.

Aso on rising fuel prices

KYODO

Finance Minister Taro Aso said Tuesday that Japan’s three-year shutdown of nuclear power plants may be pushing up global fossil fuel prices and preventing some emerging economies from meeting their energy needs.

“The suspension of nuclear power generation has been affecting (foreign nations’) energy and import prices. Because Japan has such great economic power, we have to consider this as an international issue,” Aso told a press conference.

“Japan must not lose its national wealth because of higher energy imports,” he added, calling for prompt restarts of idled nuclear power plants.

His remarks came after Finance Ministry data showed Monday that Japan’s current account surplus in fiscal 2013 through March was the smallest on record thanks to soaring fossil fuel imports. Comparable records date back to fiscal 1985.

Aso dismissed fears that Japan could become a country with a persistent current account deficit, saying that the nation “has earned high returns from investments overseas.

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