TOKYO (Reuters) - Japan’s government on Friday raised its growth forecasts for private consumption, capital expenditure, and housing investment for the current fiscal year as domestic demand gathers strength.
The government left its overall forecast for gross domestic product growth unchanged in fiscal 2017, which started in April, due to an expected decline in inventories and slightly slower growth in fiscal spending.
The government also expects consumer prices to rise 1.1 percent this fiscal year and 1.3 percent in fiscal 2018, highlighting a very slow build up in inflationary pressure.
The forecasts, which Japanese Prime Minister Shinzo Abe’s cabinet will use to compile next fiscal year’s budget, show the economy is likely to continue expanding comfortably unless there is a sudden and large external shock.
Consumer spending is forecast to rise 0.9 percent in fiscal 2017, according to forecasts that the government’s top advisory panel approved after a meeting on Friday.
That is more than the previous forecast for 0.8 percent growth released in January.
Housing investment is expected to rise 0.8 percent this fiscal year, well above the previous estimate of 0.1 percent growth as the Bank of Japan’s quantitative easing sparks a revival in property development.
The government expects capital expenditure to rise 3.6 percent in fiscal 2017, more than its previous estimate for a 3.4 percent increase.
Gross domestic product is expected to expand by 1.4 percent in fiscal 2018, but this does not take into account the size of fiscal spending because next fiscal year’s budget has yet to be decided.
In fiscal 2017 overall consumer prices are expected to rise 1.1 percent, unchanged from the government’s previous forecast in January. In fiscal 2018 consumer prices are seen rising 1.3 percent, underlying the difficult in achieving the BOJ’s 2 percent inflation target.
The BOJ is set to slash its consumer inflation forecast for the year ending in March 2018 to around 1.0 percent at a policy meeting ending July 20 from its current 1.4 percent estimate made in April, sources tell Reuters.
The central bank is also seen cutting next fiscal year’s inflation forecast to 1.5 percent or below, from the current projection of 1.7 percent, they said.
Depending on how big the cut in next year’s forecast will be, the BOJ may push back the timing for hitting its target from the current estimate of “around fiscal 2018,” the sources said.
Reporting by Stanley White; Editing by Sam Holmes