Japan's economic growth will slow in the fiscal year from April to only half the pace of the current year due to weak exports and consumption, but consumer prices will stop falling after three years of declines, the government said. Data on Wednesday also showed a pick-up in export growth in November, but that failed to temper caution about overseas demand because it was partly due to the yen's pullback from 15-year highs.
The Democratic Party-led government also cut its view of exports and business sentiment on Wednesday as Asia's economic recovery has shown signs of slowing. Prime Minister Naoto Kan's cabinet faces a test of fiscal discipline as it compiles a 2011/12 budget proposal due on Friday, and its rather sobering assessment of the next year's outlook could increase resistance to much-needed spending cuts. The government forecast on Wednesday that gross domestic product would grow a real 1.5 percent in fiscal 2011/12 after climbing 3.1 percent in the current year to March 2011.
Overall consumer prices are projected to show flat growth in the next financial year, which would mark the first time in three years that the overall consumer price index (CPI) managed to escape negative territory. Japan has been slogging through deflation for much of the past decade and the government is targeting positive CPI growth by March 2012, as part of its drive to keep the fragile economy on a sustainable recovery track.
But declaring an end to deflation may still be far off, a Cabinet Office official said, underscoring the tentative nature of any improvement in the CPI. Exports rose 9.1 percent in November from a year earlier, in the first acceleration of export growth in nine months due to shipments of steel to China, but that was less than the median estimate for a 10.0 percent annual increase.