TOKYO (MNI) – Economists have revised up their forecasts for
Japan’s economic growth for this fiscal year but revised them down for
fiscal 2011 while foreseeing a rise in consumer prices in fiscal 2012
after three years of declines, according to the latest monthly survey by
the Cabinet Office’s Economic Planning Association released on Tuesday.

The survey also showed that the number of the economists who expect
the Bank of Japan to ease credit further rose to 23 from 20 in the
previous survey, both up sharply from seven in the August poll.

Meanwhile, the number of the economists who expect the BOJ to
tighten its credit grip continued to fall to 17 in October from 21 in
September and 34 in August.

The survey showed that economists expect the year-on-year change in
core consumer prices to return to positive territory in fiscal 2012 with
a slight 0.21% gain over fiscal 2011 after posting three years of
continued price drops. It is their first fiscal 2012 CPI forecasts for
the survey.

The average economist forecast for the core CPI (excluding fresh
food) for fiscal 2011 ending March 31, 2012 was -0.17% y/y, revised down
further from their previous forecast of -0.12%.

It is much weaker than the latest median projection by the BOJ
policy board at +0.1% for the next fiscal year that was presented in
July. The board is expected to revise down its forecast in its
semi-annual Outlook Report due out on Oct. 28.

The average forecast for the core CPI was -0.90% in the current
fiscal year that began on April 1, down slightly from -0.89% projected
in the previous survey.

The association polled 42 economists and research institutions from
Sept. 28 to Oct. 5 for its ESP Forecast, and 42 answered on the growth
and inflation outlook and 41 on the BOJ’s monetary policy stance.

On the BOJ policy, about one fourth of the 41 forecasters replied
by the morning of Oct. 5, before the BOJ announced a “comprehensive”
monetary easing package on that afternoon, it said.

Last week, the BOJ adopted a new hybrid monetary policy targeting
both the level of borrowing costs and the amount of fund injections,
enhancing the practically zero interest rate policy.

The action followed no change in policy at the Sept. 6-7 meeting
and a slight BOJ credit easing by expanding its low-interest funding
program for banks at an extraordinary policy meeting on Aug. 30.

At the Oct. 4-5 meeting, the board lowered the target for the
overnight lending rate among commercial banks to a range of zero to 0.1%
from 0.1%, which is aimed at influencing interest rates up to two year
maturities without killing off the interbank money market functions.

The BOJ made it clearer in a written message that it will maintain
the extremely accommodative policy stance until it is convinced prices
will stabilize and won’t slip back into deflation, hoping to prolong the
effects of the credit easing.

The BOJ also plans to launch a temporary fund on its balance sheet
for buying a total of Y5 trillion in financial assets including Japanese
government bonds, commercial paper, corporate bonds, exchange-traded
funds (ETFs) and Japan real estate investment trusts (J-REITs).

The previous forecast was conducted from Aug. 25 to Sept. 1 and
released on Sept. 8.

The latest survey showed that the economists on average continued
to predict that the core CPI will remain in negative territory for 13
straight quarters from the first quarter of 2009 through the first
quarter of 2012.

Japan’s core consumer prices fell 1.0% in August from a year
earlier, the 18th straight y/y drop, as retail discounts and subsidies
for high school education continued to offset higher energy costs.

The pace of decline in the core CPI — excluding fresh food but
including energy — decelerated slightly from -1.1% in July and matched
June’s -1.0% because the year-on-year rise in energy prices expanded to
+4.3% in August from +3.7% in July, raising the sector’s positive
contribution to the CPI.

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.

Meanwhile, the average economist forecast for real GDP growth was
revised up to +2.09% from +1.93% for fiscal 2010 but was revised down
further to 1.46% from +1.58% for fiscal 2011, the ESP survey showed.

These forecasts are weaker than the BOJ board’s July median
projection at +2.6% for fiscal 2010 and +1.9% for fiscal 2011. The BOJ
has said these forecasts are likely to be revised down later this month.

Japan’s economy expanded a real 0.4% in April-June from the
previous quarter, revised up sharply from a preliminary 0.1% gain in
line with economist forecasts, as business investment turned out to be
much stronger and private-sector inventory drawdowns smaller than
initially estimated.

Still, the pace of the economic recovery lost some steam from
unusually strong quarter-on-quarter growth rates of +1.2% in
January-March and +0.9% in October-December 2009

On an annualized basis, GDP grew 1.5% in April-June, also revised
up sharply from a preliminary 0.4% growth, but slower than +5.0% in the
first quarter of this year and +3.4% in the final quarter of last year.

The survey showed that the economists polled forecast on average
GDP growth of +2.11% at an annualized pace for the July-September
quarter, up slightly from +2.09% forecast in the last survey.

But it also showed that the economists now projected a 0.21% drop
in real GDP in the October-December quarter of this year, down from
their average forecast of a 0.83% rise in the previous survey.

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

Of the 41 economists who provided their forecasts about one to two
weeks ago, 23 expected the BOJ to ease its policy stance further between
October and December this year, up from 20 in the last survey.

None of them expected a credit easing next year any longer,
suggesting that the latest policy action by the BOJ covers many grounds
in the face of growing downside risks to a sustained recovery.

A total of 18 projected that the BOJ would tighten credit next
year, down from 21 in the last survey. Almost all of them see a
tightening in or after September 2011. The forecasters are basically
choosing the latest timing available in the survey, which is in 12
months or later.

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

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