TOKYO (Reuters) - Analysts raised growth forecasts for Japan for the next fiscal year ending in March 2014 as the new government’s stimulus spending, expectations of further monetary policy easing and the yen’s retreat will help the economy, a Reuters poll showed.
The poll was conducted on January 15-18, before the Bank of Japan, responding to intense political pressure, doubled its inflation target to 2 percent and announced a switch to open-ended commitment to asset buying.
But analysts said the latest steps -- the widely anticipated adoption of the new inflation goal and a policy makeover which would only take effect next year -- did not radically change the overall outlook.
“What it important for Japan is growth strategy. The BOJ has done enough easing and monetary easing alone cannot boost the economy,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance.
“The government needs to carry out steps such as deregulation to help create an environment where private sectors can invest.”
Prime Minister Shinzo Abe led his Liberal Democratic Party to a landslide victory in December elections and his campaign for aggressive budget and monetary stimulus had pushed the yen to 2-1/2-year lows and sparked a stock market rally on hopes a weaker currency would boost exports.
The yen clawed back some of its recent losses after the BOJ decision, reflecting disappointment with the delay to and limited scale of the proposed new asset buying plan, but analysts still see the yen’s downtrend as intact.
Earlier this month, the government approved a 10.3 trillion yen ($114.5 billion) economic stimulus plan, the biggest spending boost since the global financial crisis.
“Effects from the government stimulus spending on public works will be felt in the economy from around April-June,” said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.
Most of the 25 economists surveyed raised their growth forecasts for the financial year starting in April, lifting the median forecast to 1.8 percent from 1.3 percent predicted last month.
Japan’s government raised its view of the economy for the first time in eight months on Wednesday as private consumption is holding firm and business sentiment shows signs of improvement due to the falling yen and rising share prices.
Analysts said a moderate economic recovery in the United States and China would support the nation’s exports and factory output, which suffered last year because of Europe’s sovereign debt crisis and the fallout from a territorial spat with China.
Rush demand before a planned sales tax hike in April 2014 is also expected to boost private consumption later next fiscal year.
But many economists warn the stimulus could give the sluggish economy only a temporary jolt if the government fails to follow through with politically more difficult economic reforms such as deregulation of its protected farming sector.
Analysts canvassed in this month’s poll estimated on average that the 10 trillion yen fiscal package would boost economic growth by 0.7 percentage points, adding 162,500 jobs.
That is much less than the impact predicted by the government, which expects the package to spur further 10 trillion yen investment from local governments and private businesses, adding 2 percentage points to economic growth and creating 600,000 new jobs.
Analysts remain cautious forecasting the end of low-grade deflation that has been plaguing Japan for over a decade, saying incomes would lag a pick-up in the economy.
Core consumer prices excluding volatile fresh food costs are seen inching down 0.1 percent in this fiscal year ending in March and edging up 0.1 percent in the following year.
Headline consumer prices are expected to jump 2.3 percent in the year starting in April 2014, but only because of a planned 3 percentage point increase in the sales tax.