13 July 2004, 11:20  BOJ Says Economic Growth to Be Faster Than Forecast

The Bank of Japan said the world's second-largest economy will probably grow more than it forecast this fiscal year as rising exports and capital spending spread to the domestic economy. Growth will exceed the median 3.1 percent forecast for the year ending March 31 that board members made in April, the bank said in a report in Tokyo. The bank affirmed its forecast that core consumer prices, which exclude fresh food, would fall 0.2 percent this fiscal year.
``Japan's economy is expected to gather strong momentum,'' the report said. Increasing production, driven by exports and capital spending, ``is exerting positive effects on unemployment.'' Japan is extending its longest recovery in seven years as booming exports to the U.S. and China fuel sales and profits at companies including Canon Inc. Confidence among large manufacturers is the highest since 1991, when Japan's bubble economy burst, the central bank's Tankan survey showed this month. The recovery hasn't ended six years of deflation that have sapping profits of companies that depend on Japanese consumers for sales. The Bank of Japan today left interest rates almost at zero and maintained the upper limit of reserves available to banks at 35 trillion yen ($322 billion) to fight falling prices.
The bank kept is evaluation of the economy unchanged after raising it in June.
Capital Spending
In its June report, the bank said the economy is recovering, dropping the word ``gradually'' for the first time since 1991. Japan's economy expanded at a 6.1 percent annual pace in the first three months of 2004, the fastest among the Group of Seven industrialized nations. The recovery from a third recession since 1991 is in its ninth quarter. Large manufacturers plan to increase capital spending by 20 percent in the year ending next March 31, the biggest increase in 15 years, the Bank of Japan's quarterly Tankan survey showed this month. Large manufacturers are defined as having more than 1 billion yen in capital. Exports and capital spending ``continue to increase,'' the bank said today. Exports in May rose at their fastest pace since 1995, according to a balance-of-payments report released by the Ministry of Finance yesterday. Consumer spending, which accounts for more than half of Japan's economy, is showing ``positive movements'' as unemployment falls, the report said. Consumers accounted for about a third of Japan's growth in the first three months of this year.
The central bank said core consumer prices, which are a benchmark for conducting monetary policy, will continue to decline slightly. Wholesale prices are likely to increase as commodity prices rise. Japanese wholesale prices rose for a fourth month in June because of higher costs of oil and other commodities. The corporate goods price index rose 1.4 percent in June from the same period a year ago, the Bank of Japan said yesterday. That was the largest increase since September 1997. ///www.bloomberg.com

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