By Leika Kihara
TOKYO (Reuters) – Japan’s government on Friday cut its growth forecast for this year as consumption fell due to rising import costs caused by a weak yen, underscoring the fragility of the economic recovery.
But it forecast growth would accelerate next year on strong capital spending and consumption, while continuing to expect the economy to experience a domestic demand-led recovery.
However, some members of the government’s top economic council expressed concern about the recent decline in consumption and the pain the yen’s fall means for households.
“We cannot ignore the impact of a weak yen and rising prices on household purchasing power,” the private sector council members said Friday during a meeting to discuss the new growth forecasts.
“The government and the Bank of Japan should shape their policies with a keen eye on the yen’s recent declines,” the analysts said.
Prime Minister Fumio Kishida said at the meeting that the government must be vigilant about the impact that rising prices, partly caused by a weak yen, could have on the economy, the Kyodo news agency reported.
The government publishes its economic growth forecasts in January and then revises them around July. They serve as the basis for drawing up the state budget.
In the revised estimates, the government has lowered its economic growth forecast for the current fiscal year ending March 2025 to 0.9% from 1.3% in January.
The new forecast is above private sector forecasts of 0.4% growth, reflecting government hopes that broader wage increases, tax cuts and an extension of fuel subsidies will boost consumer spending.
According to estimates, the government expects the economy to grow by 1.2% in fiscal year 2025.
While a weak yen gives exporters a boost, it is also a source of concern for policymakers, as it hurts consumption by driving up the cost of fuel and food imports.
The government is believed to have 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 July 31.
The BOJ is also likely to revise down its growth forecast for this fiscal year at the meeting, reflecting a rare unplanned cut to historical gross domestic product (GDP) figures, sources told Reuters. It currently forecasts growth of 0.8% in the current fiscal year.
(Reporting by Leika Kihara; Editing by Stephen Coates and Neil Fullick)
