Japan bullish on FY2019

tokyo — Japan’s government forecast on Friday the economy will grow faster than private-sector projections in fiscal 2019, with exports, domestic private consumption and capital spending expected to offset the hit from a planned sales tax hike.

The Cabinet Office’s projections, presented at the Council on Economic and Fiscal Policy — the government’s top economic panel — showed the economy was likely to grow 1.5 per cent in price-adjusted real terms in the fiscal year starting in April 2019. It is expected to expand 2.8 per cent in nominal terms.

Market economists see the economy growing just 0.8 per cent in real terms and 1.8 per cent in nominal terms, reflecting the impact from a planned sales tax increase in October 2019.

The government’s lofty growth estimates highlight Prime Minister Shinzo Abe’s desire to secure higher tax revenue as he attaches greater importance to growth than austerity to revive the economy and restore tattered public finances, analysts say.

“The government’s projections seem to underestimate uncertainty over the global economy and domestic labour shortages,” said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.

“A trade war between the United States and its trading partners could weigh on global growth, which would in turn exert downward pressure on Japan’s exportled economy.”

The Cabinet Office also forecast overall consumer prices would rise 1.5 per cent in fiscal 2019. Stripping out a boost from the planned sales tax hike, the government sees overall consumer price growth around one per cent, a Cabinet Office official said.

In comparison, private-sector economists expect core consumer prices, which exclude fresh foods but include oil products, rising one per cent, while the central bank estimates core inflation at 1.8 per cent in fiscal 2019.