Kihara Laika
TOKYO (Reuters) – Japan's government on Friday cut its growth forecast for this year as a weaker yen raises import costs, hurts consumption and highlights the fragility of the economic recovery.
But it expects growth to accelerate next year on strong capital spending and consumption, and maintains its view that the economy will sustain a domestic demand-led recovery.
However, some members of the government's top economic council expressed concern about recent weakness in consumption and the pain the yen's depreciation is causing to households.
“We cannot ignore the impact of a weak yen and rising prices on household purchasing power,” the committee's private-sector members said at a meeting on Friday to discuss the new growth forecasts.
“The government and the Bank of Japan must pay close attention to the recent yen depreciation to guide policy,” they said.
According to Kyodo News, Japanese Prime Minister Fumio Kishida said at the meeting that the government must be wary of the economic impact of rising prices caused by a weak yen.
The government releases economic growth forecasts in January and then revise them around July. They are the basis for preparing the national budget.
In the revised forecast, the government lowered its economic growth forecast for the current fiscal year to March 2025 to 0.9% from 1.3% in January.
The new forecast is higher than the 0.4% growth forecast by the private sector, reflecting the government's hope that wider wage increases, tax cuts and an extension of fuel subsidies will boost consumer spending.
Estimates show the government expects the economy to grow 1.2% in fiscal 2025.
While a weak yen has boosted exporters, it has become a concern for policymakers as it raises the cost of fuel and food imports, hurting consumption.
The government has intervened several times this month to slow the yen's decline, shifting market attention to whether the Bank of Japan will raise interest rates at its two-day policy meeting ending on July 31.
The Bank of Japan is also likely to cut its growth forecast for the current fiscal year at the meeting, sources told Reuters, reflecting a rare unexpected downward revision to historical gross domestic product (GDP) data. Growth is currently expected to be 0.8% this fiscal year.
(Reporting by Leika Kihara; Editing by Stephen Coates and Neil Fullick)
