Tokyo - Economists cut Japan's economic growth forecast for the second straight month, a Reuters poll showed, as a slowdown in capital expenditure and lacklustre export demand weighs on the outlook for the current fiscal year.
The economists stuck with their view that Japan's growth will slow further next fiscal year due to a planned increase in the sales tax in April.
The biggest downside risks to this scenario are a longer-than-expected downturn in consumer spending after an increase in the sales tax, the poll showed, as well as if overseas economies unexpectedly weaken.
The chance of these risks materialising is not that high, but the Bank of Japan would likely bear the burden of responding to these risks by further expanding its balance sheet, according to the poll.
“The biggest risk to growth is obviously that spending stays weaker for longer following the consumption tax hike,” said Marcel Thieliant, economist at Capital Economics.
“For inflation, the main risks are probably to the downside, as inflationary pressure might be lower than expected once the impact of the weak exchange rate fades.”
The world's third-largest economy is forecast to grow 2.5 percent in the fiscal year ending March 2014, a Reuters poll of 25 economists taken Dec. 5-10 showed, down from 2.6 percent in last month's poll.
That marked the second straight month that economists cut their forecasts for the current fiscal year.
Growth is expected to slow to 0.8 percent in the following fiscal year and pick up to 1.2 percent in fiscal 2015, unchanged from last month's poll.
Data earlier this week showed Japan's gross domestic product growth was revised down more than expected in July-September as capital expenditure flatlined, showing how difficult it has been for Prime Minister Shinzo Abe to stimulate business investment.
It has been almost a year since Abe took office and jolted financial markets with promises to revive the moribund Japanese economy and end deflation.
Fiscal stimulus spending and bold easing from the BOJ gave the economy an initial boost, but Abe has yet to deliver complex reforms needed to increase the country's long-term growth potential.
Under a new policy framework put in place in April, the BOJ aims to double the base money in two years to 270 trillion yen ($2.6 trillion) by the end of 2014 via purchases of government bonds and risky assets to meet a 2 percent inflation target in two years.
Many private sector economists have said the two-year timeframe is unrealistic, and now some members of the BOJ's policy board are also calling for the price target to be watered down.
The Reuters poll showed that Japan's core consumer prices were expected to rise 0.8 percent for the fiscal year starting April 2014 and 0.95 percent for fiscal 2015, excluding the effect of the expected sales tax hike, little changed from last month's poll.
The trend for prices in Japan is becoming more uncertain as companies have been slow to raise wages while capital expenditure, a key driver of new employment, has struggled to take off.
Many economists said the BOJ would be under more pressure than the government to respond to any sudden downturn in the economy by expanding its debt and asset purchases even further, the poll showed. - Reuters