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BOJ Officials Said to Mull Cutting 2014 Growth Forecast

BOJ Governer Haruhiko Kuroda
Haruhiko Kuroda, governor of the Bank of Japan (BOJ), faces increased pressure to boost his unprecedented stimulus after Japan’s deepest contraction in more than three years in the second quarter. Photographer: Junko Kimura-Matsumoto/Bloomberg

The Bank of Japan may cut its growth forecast for this fiscal year for a fourth time, as exports fail to bolster an economy weakened by April’s sales-tax increase, according to people familiar with the central bank’s discussions.

The expansion for the 12 months through March 2015 is likely to be lower than the 1 percent median forecast of BOJ board members, said the people, who asked not to be named because the talks are private. Growth is likely to be 0.4 percent, according to the median estimate in a survey of 24 economists by Bloomberg News on Aug. 13-14.

Another downward revision when the board reviews its outlook in October would underscore waning momentum in the world’s third-biggest economy. Governor Haruhiko Kuroda faces increased pressure to boost his unprecedented stimulus after Japan’s deepest contraction in more than three years in the second quarter, according to economists at Citigroup Inc. and Morgan Stanley MUFG Securities Co.

“We think the BOJ will have no option but to revise down its projections again,” said Takeshi Yamaguchi, an economist at Morgan Stanley MUFG Securities Co.

The weaker outlook contrasts with the government’s decision last month to raise its assessment of the economy for the first time in six months. The downturn in demand that followed the sales-tax increase was easing, the Cabinet Office said in a report on July 17.

Yen Decline

Gross domestic product shrank an annualized 6.8 percent in the second quarter as consumer spending and investment plunged after the 3 percentage point increase in the sales levy to 8 percent. Industrial production dropped in June the most since the March 2011 earthquake as companies tried to pare elevated inventories.

The economy has received little support from exports, even after the yen has lost 16 percent against the dollar since Prime Minister Shinzo Abe took power in December 2012 and began implementing his reflationary policies, dubbed Abenomics.

The yen was 0.1 percent lower at 102.55 per dollar at 4:02 p.m. in Tokyo.

The volume of outbound shipments was down 2.5 percent in June from levels in late September 2012, when the yen began to slide on expectations Abe would step up Japan’s fight against two decades of stagnation.

The BOJ is set to review its economic and price outlook at an Oct. 31 meeting. The policy board in October last year forecast 1.5 percent before cutting in a series of revisions to 1 percent on July 15.

Weaker Trajectory

The Bloomberg survey indicated economists see Japan’s economy on a weaker trajectory than projected by the BOJ. The median forecast of the analysts is for 1.2 percent growth in the next fiscal year that begins in April 2015, less than the central bank’s 1.5 percent outlook. For the following year, economists see an expansion of 1 percent compared to the BOJ’s forecast of 1.3 percent.

Together with rising inflation expectations, reduced slack in the economy will drive price rises toward the BOJ’s target, according to Kuroda.

A weakening growth outlook would add headwinds to the central bank’s bid to stoke faster inflation.

Consumer prices excluding fresh food -- the BOJ’s main gauge -- rose 1.3 percent in June from a year earlier, stripped of the effects of the higher sales tax. That was more than halfway to the central bank’s 2 percent goal, but slower than 1.4 percent in May.

Inflation Expectations

Some BOJ officials also are concerned that rising inflation expectations have stalled and may begin to decline, tracking the recent deceleration in consumer price gains, according to people familiar with the discussions.

The Bloomberg survey showed that economists are even less optimistic. The medians of the survey forecasts points to core inflation of 1.1 percent in each of the three fiscal years through March 2017.

The BOJ board’s most recent projections are for price increases accelerating from 1.3 percent in the current fiscal year to 1.9 percent next year and 2.1 percent in the following year.

(An earlier version of this story was corrected to remove an incorrect reference to stimulus in the fourth paragraph.)

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