Bank of Japan Unveils New Quarterly Forecasts

April 30, 2009

The Bank of Japan revised down its growth and inflation forecasts but not by more than had been expected.  Monetary officials anticipate a flattening contraction of growth in April-September and the onset of a recovery thereafter during the second half of fiscal 2009.  An output gap, that is excessive aggregate supply, persists for the entire forecast period, however.  For this reason and because of a likely decline in wage pressures, inflation is projected to remain negative well into 2010.

After deliberating for four hours and 32 minutes, the Policy Board kept its overnight money rate target at 0.1%, where such has been since December.  Officials believe that any further rate cut to zero would harm growth more than it would promote such.  The problem is that the change in rates is just as important as their level, and the total decline of overnight Japanese rates of 40 basis points since last autumn is woefully smaller than the declines at other major central banks.  An unchanged, albeit near zero nominal policy rate, translates into a rising real rate juxtaposed against rising deflation.  The Bank of Japan has also implemented measures to stabilize financial markets and to facilitate corporate lending.  It has increased outright monthly purchases of Japanese government bonds (JGB’s) but is not inclined to raise such any further.

The Bank of Japan released a new semi-annual Economic Outlook and updated its quarterly forecasts.  Projections are expressed as ranges and modal points within those ranges.  The table below traces the evolution of the GDP growth and core CPI point forecasts over the past year.  Column headings reflect the date when forecasts were made.  Fiscal 2008 began in April 2008 and ended in March 2009.

  04/08 07/08 10/08 01/09 04/09
FY08 +1.5% +1.2% +0.1% -1.8% -3.2%
FY09 +1.7% +1.5% +0.6% -2.0% -3.1%
FY10 +1.7% +1.5% +1.2%
Core CPI          
FY08 +1.6% +1.8% +1.6% +1.2% +1.2%
FY09 +1.0% +1.1% 0.0% -1.1% -1.5%
FY10 +0.3% -0.4% -1.0%

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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