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BOJ Cuts Growth Forecasts for FY2012, Keeps Policy Unchanged

Bank of Japan Governor Masaaki Shirakawa
Masaaki Shirakawa, governor of the Bank of Japan. Photographer: Haruyoshi Yamaguchi/Bloomberg

The Bank of Japan cut its growth outlook for the year starting in April while keeping its zero-interest rate policy as Europe’s debt crisis reduced global demand and keep the yen strong.

Governor Masaaki Shirakawa and fellow board members lowered the economic forecast to 2 percent from an October estimate of 2.2 percent for fiscal 2012. The central bank maintained its projection for consumer prices to rise 0.1 percent, according to its statement released in Tokyo today.

The revisions reflect growing BOJ concern that the European debt crisis will slow exports and keep the yen near near a record high, cutting into corporate profits. Shirakawa has said the European situation is the biggest threat, and analysts including Naka Matsuzawa said he may not take further easing steps unless the turmoil widens significantly.

“The BOJ sees European credit crunch as the biggest risk,” Matsuzawa, chief investment strategist at Nomura Securities in Tokyo, said before the statement was released. “It won’t take further easing steps until the problem reignites.”

The central bank kept its asset-buying fund at 20 trillion yen ($260 billion), and its credit-lending program at 35 trillion yen, it said in the statement. The benchmark interest rate was held in a range of zero to 0.1 percent. The unanimous decisions were in line with predictions of all 14 economists surveyed by Bloomberg News.


“Japan’s economic activity has been more or less flat, mainly due to the effects of a slowdown in overseas economies and the appreciation of the yen,” the BOJ said. “Growth prospects for fiscal 2012 and 2013 will likely remain broadly unchanged because the economy is expected to gradually return to a moderate recovery path in the first half” of the year starting April 1, it said.

GDP will probably expand 1.6 percent in the year starting April 2013, when consumer prices will increase 0.5 percent, the central bank said, little changed from their October projections. In the year ending this March, the economy will contract 0.4 percent and prices will decline 0.1 percent, both lower than initially anticipated, the BOJ said in a statement.

“There is no sign for us as we look at the Japanese economy and the state of inflation to think that the Bank of Japan will do anything other than keep interest rates at zero for another two to three” years at least, Allen Sinai, co-founder and president of Decision Economics Inc. in New York, said last week. “Zero-interest rates as far as you can see, which is a long way out, and expansion of the balance sheet.”

‘Ideal’ Rate

Toyota Motor Corp. Chief Executive Officer Akio Toyoda said on Jan. 5 the “ideal” exchange rate is 90 yen to the dollar after the Asia’s largest automaker cut its profit forecast by more than half in December.

The yen traded at 77.03 per dollar as of 12:52 p.m. after it reached postwar high of 75.35 on Oct. 31. It rose to an 11-year high of 97.04 per euro on Jan. 16.

The World Bank cut its global economic outlook last week to 2.5 percent growth this year from a June estimate of 3.6 percent, citing risks of a widening euro-area crisis. Japan’s economy was forecast to expand 1.9 percent in 2012, slower than a prior estimate of 2.6 percent growth, the World Bank said Jan. 17.

Economists predict a report tomorrow will show exports declined for a third month in December. Consumer prices excluding fresh food fell 0.2 percent in November from a year earlier, a report showed last month, undescoring Japan’s struggle to overcome decades of deflation.

The Bank of Japan has pledged to keep benchmark rates unchanged until it sees sustained signs of inflation.

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