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Japan Says Growth to Slow to 1.5% Next Fiscal Year From 3.1%

Dec. 22 (Bloomberg) -- Japan’s government said the country’s economic growth rate will slow next year as stimulus boosts fade and the strong yen threatens exports.

Gross domestic product will probably increase 1.5 percent in the year starting April 1 after growing a projected 3.1 percent this year, the Cabinet Office said today in Tokyo. The forecasts are used to project tax revenue for next year’s budget.

Japan’s recovery from its deepest postwar recession has been tempering as a car subsidy program ended and the yen’s 11 percent advance against the dollar this year threatened exporter profits. The Bank of Japan pledged yesterday to buy more assets to keep the rebound going.

“We need to keep a close eye on any possible slowdown in overseas economies and swings in the foreign-exchange rate,” the report said. “We will continue to take bold action including currency intervention when necessary, given that an excessively strengthening yen and its prolongation risk damaging economic and financial stability.”

In June, the Cabinet Office had projected the overall economy will expand 2 percent for fiscal 2011.

Job growth will help the unemployment rate decline to 4.7 percent next fiscal year from a projected 5 percent in the year ending March, according to today’s report. With improvements in employment and incomes supporting demand at home, consumer prices will probably remain unchanged, marking the first time in three years the figure won’t drop, the Cabinet Office said.

‘Losing Momentum’

Assuming that the global economy will continue to gradually recover, “improvements in employment and incomes will increasingly benefit private demand,” the government said. A separate report today showed that export growth accelerated for the first time in nine months in November.

Even so, economists including Julian Jessop haven’t ruled out the possibility that Japan will stumble back into a recession.

“The economic recovery is clearly losing momentum, while deflationary pressures are still strong,” Jessop, a London-based economist for Capital Economics, said in a note highlighting the risk that the economy may contract this quarter and the next. “The room for fiscal stimulus is also now largely exhausted.”

To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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