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TOKYO (MNI) - The International Monetary Fund revised up its forecasts for
Japanese economic growth in 2017 and 2018, but projected inflation will remain
below the Bank of Japan's 2% target for years to come.
The IMF now sees Japan real GDP rising 1.5% this year, up from its previous
1.3% forecast in July, according to its World Economic Outlook published
Tuesday. For 2018, the IMF expects Japanese growth of 0.7%, up from slightly
July's projection of 0.6%.
Japan's economy grew 1.0% in calendar 2016, just above its estimated growth
"In Japan, momentum is driven by the strengthening of global demand and
policy actions to sustain a supportive fiscal stance, and is expected to
continue in 2017, with growth forecast at 1.5%," the IMF said.
"The pace of expansion is expected to weaken thereafter, based on the
assumption that fiscal support fades as currently scheduled, private consumption
growth moderates, and the boost from 2020 Olympics-related private investment is
offset by higher imports and slower projected growth in foreign demand."
The IMF warned that Japan's demographics -- the low birth rate and aging
population -- will limit future growth.
"Over the medium term, a shrinking Japanese labor force will curtail GDP
growth although, in per capita income terms, Japan's growth is projected to
remain close to recent averages," it said.
The IMF urged advanced economies to keep their monetary policy
accommodative until there are firm signs of inflation returning to targets, or
in Japan's case, until it completely overcomes deflation and anchor inflation
around 2%, the target set in 2013.
"The Bank of Japan should maintain a sustained accommodative stance,
including its target for long-term interest rates," it said.
Headline inflation rates are expected to return to positive territory in
all advanced economies that experienced deflation in 2016, it predicted.
"In particular, headline inflation in Japan, after being slightly negative
in 2016 [down 0.1%], is expected to increase to 0.4% in 2017 on the back of
higher energy prices on a year-over-year basis and a narrowing output gap," the
"But inflation rates are projected to remain below the Bank of Japan's
target throughout the forecast horizon."
The IMF projects the pace of consumer price increase in Japan will remain
slow, with total CPI averaging 0.5% in calendar 2018, and will still fall short
of the 2% target in 2022, with an average of 1.6% that year.
The BOJ board's median forecast for the core CPI (excluding fresh food) is
+1.1% for fiscal 2017 ending in March 2018 and +1.8% for fiscal 2018, much
higher than private-sector economist forecasts.
At its next policy meeting on Oct. 30-31, the BOJ board will update its
medium-term growth and inflation projections and risk analysis in the quarterly
Headline inflation rates are projected by the IMF to increase in both
advanced and emerging market and developing economies, though somewhat less
briskly than anticipated in its report released in April this year, partly
reflecting weaker-than-expected oil prices.
"Deflation risks -- as measured by the estimated probability of a decline
in the price level four quarters ahead -- have declined for the euro area and
Japan, reflecting stronger projected growth in domestic demand," the IMF said.
Earlier Tuesday, BOJ Governor Haruhiko Kuroda repeated his optimistic
outlook that continued modest economic growth and a shift in public expectations
toward higher prices should lead inflation to the bank's 2% target.
"The year-on-year rate of change in the CPI (all items less fresh food) is
likely to continue on an uptrend and increase toward 2%, due mainly to an
improvement in the output gap and a rise in medium- to long-term inflation
expectations," Kuroda told a quarterly meeting of the BOJ branch managers.
In his brief opening remarks, the governor didn't say when the BOJ could
anchor inflation around 2%.
In July, the BOJ pushed back the timeframe for hitting the 2% inflation
target to "around fiscal 2019" from the previous estimate of "around fiscal
2018." It was the sixth delay since the bank began aggressive easing in April
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