TOKYO -- The Bank of Japan will consider upgrading its economic growth forecast, encouraged by improving exports, strong production and recovering consumer spending, but it remains cautious on lifting its inflation outlook.
The BOJ will put together its quarterly outlook for economic activity and prices at a policy meeting Jan. 30-31. The report will outline the bank's forecast for each of the three years from now to fiscal 2018, taking into account events such as the inauguration of Donald Trump as U.S. president Friday.
The previous report, released in November, forecast Japan's real gross domestic product as growing 1% in fiscal 2016, with fiscal 2017 seen at 1.3% and fiscal 2018 at 0.9%. This time, the central bank is believed to be leaning toward upgrading fiscal 2016 and 2017, with the latter expected to end up in the mid-1% range.
Concerns over foreign economies have receded, reflecting such factors as the American economic recovery. Japan's export of smartphone components -- seen as a barometer for the health of the manufacturing sector -- is brisk, helped not only by temporary demand from Apple's new iPhone model but also by growth in shipments to Chinese phone makers as well.
Sluggish domestic consumption is also improving. Against a backdrop of bullish hiring and increased income, sales are recovering for seasonal winter wear, as well as durable goods such as automobiles. This prompted the BOJ in its December meeting to raise its general assessment of the economy for the first time in 19 months.
The new GDP calculation method Japan adopted late last year will also be reflected in the new outlook. This new standard treats businesses' research and development spending as value-creating investment, and the resulting boost to economic output should appear primarily in fiscal 2016 and 2017.
On the other hand, the BOJ is deeply cautious about raising price inflation outlooks. The bank has forecast the consumer price index, excluding fresh food, to shrink 0.1% for fiscal 2016, then grow 1.5% in fiscal 2017 and 1.7% in fiscal 2018.
Overseas economies appear on the rise, but crude oil prices -- which greatly affect prices worldwide -- remain depressed. Japan's consumer prices are still on the decline. The bank believes that inflation expectations are easily swayed by sluggish price trends in the past, and it takes time to change the public's deflation-mindset.
Since the U.S. presidential election in November, high hopes for economic policies under the incoming Trump administration have driven the yen's value down and Japanese stock prices up. In discussing the economic and price outlook, the BOJ will touch on expected new infrastructure spending and tax cuts under Trump and their effect on the economy, as well as how to incorporate the effect on Japan.
The BOJ, seeking to defeat deflation, aims to achieve 2% inflation by around fiscal 2018. Under its policy framework centering on swaying the yield curve, the bank intends to continue monetary easing.