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TOKYO (MNI)

The board of the Bank of Japan has increased its forecast for economic growth in fiscal 2021, which begins on April 1, as the economy will be boosted by the government's economic stimulus package.

But the median forecast for real GDP this fiscal year was lowered as economic activities, mainly private consumption, are restricted by the state of emergency.

With regard to the risk balance, the BOJ said, "risks to both economic activity and prices are skewed to the downside, mainly due to the impact of Covid-19."

Other key points from the Outlook Report released after the BOJ board meeting on Thursday:

GDP AND CPI

The board's median forecast for gross domestic product in this fiscal year was revised down to -5.6% from the forecast of -5.5% made in October.

The median forecast for GDP in fiscal 2021 and 2022 was 3.9% and +1.8%, revised up from +3.6% and +1.6% in October.

The inflation rate forecast this fiscal year was revised to -0.5% from October's -0.6%. The inflation rate forecasts in fiscal 2021 and 2022 were +0.5% and +0.7%, compared with +0.4% and +0.7%, which is still far away from the BOJ's price stability target of 2%.

ECONOMY

The BOJ maintained the economic recovery scenario although it said the pace of improvement is expected to be only moderate while the impact of Covid-19 continues.

The BOJ tweaked the economic assessment, adding "as a trend" to the current assessment.

"Japan's economy has picked up as a trend, although it has remained in a severe situation due to the impact of Covid-19 at home and abroad," the BOJ said.

The baseline scenario is "based on the assumption that, while preventing measures against Covid-19 and improving economic activity simultaneously, the impact of Covid-19 will wane gradually and then almost subside toward the end of the projection period."

RISK OF FINANCIAL IMBALANCES

"When examining financial imbalances form a longer-term perspective, prolonged downward pressure on financial institutions' profits could create a risk of a gradual pullback in financial intermediation, given the existing factors – such as the prolonged low interest rate environment, the declining population and excess savings in the corporate sector – as well as the recent impact of Covid-19."

MNI Sydney Bureau | +61-405-322-399 | lachlan.colquhoun.ext@marketnews.com
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