Japan projects 1.4% economic growth, 1.2% inflation, in FY 2014
TOKYO (Kyodo) -- Japan's economy will grow 1.4 percent in fiscal 2014 on the back of healthy domestic demand, amid inflation of 1.2 percent -- excluding the effects of the consumption tax hike in April, the government projected Saturday.
The government's growth projection in real terms compares with estimated growth of 2.6 percent in fiscal 2013, indicating that the world's third-biggest economy will stay on the recovery path despite fears that the 3-point hike in the national sales tax to 8 percent on April 1 would stifle consumer spending and investment.
The government's price projection also signals a possible end to nearly two decades of deflation under the Bank of Japan's ultraeasy monetary policy.
In its latest forecast, the BOJ projected a 1.3 percent rise in the consumer price index for fiscal 2014. Under a massive monetary stimulus program introduced in April, the central bank is targeting an inflation rate of about 2 percent within about two years.
Economic and fiscal policy minister Akira Amari, who is in the hospital to receive treatment for early-stage tongue cancer, said in a statement that a possible economic slowdown triggered by the tax hike is a concern, but Japan's economy is "expected to continue to recover, buoyed by robust domestic demand" in the fiscal year beginning April 1.
With prices rising, the nation's nominal gross domestic product is set to expand by 3.3 percent, up from 2.5 percent during the current fiscal year to March 31, the government said.
The GDP deflator, a wider price gauge than the consumer price index, is forecast to rise 0.5 percent even if the impact of the consumption tax hike is excluded, it added.
Japan's nominal GDP is projected to reach 500.4 trillion yen next fiscal year, up 16.2 trillion yen from the projected figure for this year, the government said. It would be the first time in seven years that nominal GDP topped 500 trillion yen, thus recovering to the level before the 2008 onset of the global financial crisis.
If the projections are realized, the rate of nominal GDP growth would also surpass the real, or inflation-adjusted, rate for the first time in 17 years.
The growth forecasts will be used to estimate government tax revenue in compiling the budget of the year. The Cabinet plans to approve the fiscal 2014 initial budget on Tuesday.
Amid improving corporate profits, the government said corporate capital spending -- a pillar of economic growth under the economic policies of Prime Minister Shinzo Abe -- will expand a real 4.4 percent, up sharply from the 0.4 percent increase projected this year.
But consumer spending is expected to grow only 0.4 percent in the wake of the tax hike, compared with a 2.5 percent rise in fiscal 2013 -- and housing investment is likely to fall 3.2 percent, following a 7.3 percent jump, the government said.
Exports are projected to expand 5.4 percent, up from 4.0 percent this year, due in part to global economic recovery. On the other hand, imports are forecast to increase 3.5 percent, down from an expected 4.2 percent jump in fiscal 2013, which would mean Japan's trade balance would improve slightly.
Japan is certain to log a record trade deficit in calendar 2013, due to the depreciation of the yen and sharp increase in imports of fossil fuels for expanded thermal power generation because all nuclear plants in Japan are currently shutdown.
The government anticipates the U.S. dollar-Japanese yen exchange rate will average 100 yen to the dollar in fiscal 2014, little changed from a projected rate of 99.2 yen in fiscal 2013.
On employment conditions, the government said Japan's jobless rate is forecast to fall to 3.7 percent in fiscal 2014 from 3.9 percent this year.
In an effort to cushion the potential negative economic impact of the sales tax hike, the Cabinet approved a 5.5 trillion yen economic stimulus package on Dec. 5, pledging to create at least 250,000 jobs.
The Cabinet Office estimated the latest stimulus package is likely to push up GDP by around 0.7 percentage point in real terms.