The Bank Of Japan (BOJ) reviewed its economic growth and inflation forecasts last Wednesday. It cut down on its forecasts based on analysts’ opinion about the wobbly success of Abenomics for the second quarter.
However, it didn’t announce any plans for stimulus yet as the BOJ is still convinced that consumption will pick up and help reach the inflation target of 2% – even though he period of April-June has seen stagnant exports, which raises uncertainties for the BOJ’s long term projections of annualized growth.
One skeptical analyst is Masamichi Adachi at JPMorgan, who projects an annual contraction of 0.3%. “There’s a danger that people will wake up to this in the middle of August and think Japan is back in recession,” he said. Adachi expects growth to pick up in the second half of 2015.
But the most painful of all is the drop of 2.2% in industrial production in May. The index of services activity fell by 0.7%. Furthermore, consumption has been down since March according to data published by the Cabinet Office.
However, BOJ Governor Haruhiko Kuroda kept his optimism on the global economy, basing his argument on China’s example whereby its economy gave a better than expected result of 7% growth in the second quarter. He insisted that exports and industrial production have been picking up.
“Export and output growth have moderated somewhat, but we expect this to be temporary. But as for the outlook, exports are expected to increase moderately, albeit with some fluctuations, due to improvements in overseas economies and the boost from a weak yen. I have no expectation of ongoing weakness in growth,” Kuroda said.
The BOJ cut its growth projections for the fiscal year to March 2016 from 2% to 1.7%, its consumer inflation from 0.8% to 0.7%. Senior economist Hidenobu Tokuda at Mizuho Research institute believes that these numbers will likely be downgraded again.
The data for fiscal years 2016 and 2017 were trimmed by the same margins. “Since Kuroda is sticking by his 2% inflation target, this would imply more monetary easing at some point”, he added.
The BOJ is relying on robust US demand to boost Japan’s Asian export markets. However, there are also a lot of pessimists who fear that China’s economic woes and lackluster global growth may slow down shipments.
“Authorities are taking various monetary and fiscal measures to support growth. The country’s growth pace will likely gradually moderate but the economy will sustain stable growth,” Kuroda said.