Japan's government doubled its economic growth forecast for this fiscal year to 3.5 percent, the fastest pace in eight years, bringing the world's second-largest economy closer to ending deflation. Growth in the year started April 1 will exceed the 1.8 percent expansion forecast in December, the Cabinet Office said in Tokyo. The Federal Reserve forecasts U.S. growth of as much as 4.75 percent this calendar year, while the European Central Bank's outlook for 2004 growth in the 12-nation euro region is 1.7 percent. The report, used to draft the budget, foresees slower consumer price declines this fiscal year, easing the deflation that has sapped corporate profits and consumer demand for six years. Faster growth may also help Prime Minister Junichiro Koizumi meet his goal of curbing Japan's $6.6 trillion in public debt, the world's largest, by boosting tax revenue.
``Japan can't lose a single moment to tackle the problem of the accumulated public debt, which everybody knows is unsustainable,'' said Yasukazu Shimizu, a senior market economist at Mizuho Securities Japan Ltd. Bonds fell and stocks and the yen rose after Kyodo News service reported the government would raise its forecast and after Federal Reserve chairman Alan Greenspan expressed confidence in the U.S. economy. The yield on the benchmark 1.8 percent bond due June 2014 rose 2 basis points to 1.78 percent at 2:25 p.m. A basis point is 0.01 percentage point.
Deflation
The yen rose as high as 108.38 to the dollar before trading at 108.56 at 2:25 p.m. in Tokyo from 108.69 late yesterday in New York. The Nikkei 225 Stock Average advanced 1.3 percent to 11,407.21. Consumer prices will fall 0.1 percent this fiscal year, less than the earlier estimate of a 0.2 percent slide, the Cabinet Office said in the report, which it submitted to a meeting of Koizumi's key economic panel. Toyota Motor Corp. Chairman Hiroshi Okuda and three other non- government members of the panel said in a joint statement that the government should keep the next year's budget spending at this year's level of 82.1 trillion yen ($756 billion) and curb new bond sales. Japan's combined central and local government debt will reach 719 trillion yen by March 2005, equaling 144 percent of the gross domestic product, the government says. The debt is the heaviest among 30 countries of the Organization for Economic Cooperation and Development.
Tax Revenue
Rising tax revenue will enable Japan to cut new bond sales by 1.1 trillion yen from an initial plan to sell 36.4 trillion yen this fiscal year, the Ministry of Finance said last month. Tax revenue slid by a third from a high of 62.5 trillion yen in the year ended March 1993 as the economy fell into a decade- long slump. This fiscal year, taxes cover only half of total spending, with the remainder coming from bond sales. The economy will grow 1.8 percent in nominal terms, without taking price changes into account, more than the earlier forecast of a 0.5 percent expansion, the Cabinet Office said. Unemployment will average 4.5 percent, less than an earlier forecast of 5.1 percent. Mazda Motor Corp., Matsushita Electric Industrial Co. and other manufacturers are reporting higher overseas sales of cars and flat-panel televisions. The export growth has helped lower unemployment to a three-year low, boosting consumer confidence and spending.
Japan's economy grew at an annual pace of 6.1 percent in the first quarter of the year, the fastest pace in the Group of Seven industrialized nations. The two-year recovery is the longest since 1997. The Bank of Japan last week said growth this fiscal year would be faster than its forecast of a 3.1 percent expansion, though it didn't offer a specific figure. Japanese economic growth will probably slow to about 2 percent next fiscal year, the Cabinet Office said. A rise in long- term interest rates at home and slower global growth might pose a threat to Japanese growth, said the non-government members of the panel. ///www.bloomberg.com