— See Separate Tables For Details

TOKYO (MNI) – Economists see slightly higher Japanese economic
growth early next year but they revised down their forecasts for late
2011 to early 2012 while projecting the pace of a recovery in consumer
prices will remain gradual, according to the latest monthly survey by
the Cabinet Office’s Economic Planning Association released on Thursday.

The survey also showed that some forecasters still expect the Bank
of Japan to ease credit this year while a majority continued to see a
tightening next year.

The survey showed economists on average expect Japan’s core
consumer price index to drop at a slightly slower pace than forecast
last month, and post a slight gain (+0.05%) in the first quarter of
calendar 2012, instead of a slight drop as predicted two months ago.

The average forecast by the economists for the core CPI (excluding
fresh food) for fiscal 2011 ending March 31, 2012 was -0.05% y/y,
revised up from their previous forecast of -0.08%.

It is more or less in line with the latest median projection by the
Bank of Japan’s policy board at +0.1% for fiscal 2011, but it still
means that Japan will post three years of continued price drops.

The association polled 42 economists and research institutions from
June 24 to July 1 for its ESP Forecast, and 39 answered on the growth
and inflation outlook and 38 on the BOJ’s monetary policy stance.

The previous forecast was conducted from May 26 to June 2 and
released on June 9.

The latest survey showed that the economists on average predicted
that the core CPI will remain in negative territory for 12 straight
quarters from the first quarter of 2009 through the final quarter of
2011.

The average forecast for the core CPI is -0.92% in the current
fiscal year that began on April 1, revised little changed from -0.93%
projected in the previous survey.

Japan’s core consumer inflation rate fell 1.2% in May, the 15th
straight year-on-year drop, with retail discounts overwhelming higher
energy costs, but the pace of decline decelerated from -1.5% in April.

The drop in high school tuition after the government began
providing subsidies at the start of the new fiscal year as part of its
economic stimulus program continued to hold down Japan’s CPI.

In addition, continued sharp discounts on durable goods —
heaters/air conditioners, flat-screen TVs and personal computers —
contributed to the price drop, overwhelming a year-over-year rise in
gasoline and heating oil costs.

For the whole of fiscal 2009 that ended on March 31, the average
national CPI fell 1.6% after rising 1.2% in fiscal 2008. The FY09 drop
was the first in five years, since -0.2% in fiscal 2004.

The survey also showed that economists expect Japan’s economy to
pick up the pace of its recovery from the second quarter of next year.
From the fourth quarter of 2011 onward, they foresee a high annualized
pace of real GDP growth above 2%.

The average forecast for real GDP was revised up slightly to +2.47%
from +2.42% for fiscal 2010, but was revised down slightly to +1.81%
from +1.82% for fiscal 2011.

The BOJ board’s latest median forecast for real GDP unveiled in its
semi-annual Outlook Report in April is +1.8% for fiscal 2010 and +2.0%
for fiscal 2011.

Japan’s economy posted the fourth straight quarter of growth in the
January-March period, backed by strong exports to Asia, continued
consumer spending gains and a recovery in business investment, but for
the whole of fiscal 2009 marked the second largest drop on record in
inflation adjusted terms (revised -2.0%).

GDP grew a real 1.2% q/q, or an annualized rate of +5.0%, in Q1,
which was supported almost equally by domestic demand (+0.6 percentage
point) and overseas demand (+0.7 point).

In the monthly survey, the association also asked economists when
they expect the BOJ to change its policy stance.

Of the 38 economists who provided their forecasts about one to two
weeks ago, 29 expect the BOJ to tighten its policy stance in or after
June 2011 and one each sees a credit-tightening in March and May 2011.

Those foreseeing a credit tightening totaled 31, up from 29 in the
previous survey.

The forecasters are basically choosing the latest timing available
in the survey, which is in 12 months or later.

A total of seven economists forecast that the BOJ will loosen its
credit grip further, down further from eight in the previous survey: one
said around July (this month), three said around August and one said
around October and two said around December this year.

BOJ policymakers are saying the bank’s credit-easing measures have
helped lower borrowing costs for banks and thus funding costs for
companies. But they have also vowed to continue supporting the economy
with a practically zero interest rate and ample fund injections in
financial markets because it is expected to take some time to overcome
deflation.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

[TOPICS: M$J$$$,M$A$$$,MAJDS$,MMJBJ$]