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Report: Japan to forecast higher inflation, GDP growth in FY'19

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Report: Japan to forecast higher inflation, GDP growth in FY'19

The Japanese government's inflation forecasts for fiscal year 2019 are set to be more optimistic than private-sector estimates and suggest progress is being made toward ending deflation in the country.

The country's Cabinet Office projects overall consumer price growth to increase to 1.5% for fiscal year starting April 2019 from a price growth forecast of 1.1% for fiscal year 2018, Reuters reported, citing a draft document to be submitted to the Council on Economic and Fiscal Policy on July 6. This compares with market expectations of core consumer price growth of 1.0% and Bank of Japan's forecast of 1.8% for fiscal year 2019.

The central bank is expected to reduce its price growth forecasts at this month's policy meeting, making it difficult for inflation to reach the bank's 2% target, according to the report.

The government expects the country's economy to grow by 1.5% in price-adjusted real terms and by 2.8% in nominal terms in fiscal year 2019. But market economists expect economic growth to be 0.8% for the year partly because of a planned sales tax increase.

The Cabinet Office's forecasts underestimate domestic labor shortages and uncertainty surrounding the global economy, SMBC Nikko Securities Chief Market Economist Yoshimasa Maruyama told Reuters.

The jobless rate in the country is projected to decrease to a 26-year low of 2.4% in fiscal 2019 and Japan's export-led economy would be negatively affected by a decrease in global economic growth because of a trade war between the U.S. and its trade partners.

For the current fiscal year that started in April, the Cabinet Office is expected to keep its overall consumer price growth forecast at 1.1%. It is also set to reduce growth projections for fiscal 2018 to 1.5% in real terms from a previous forecast of 1.8% and to 1.7% from an earlier forecast of 2.5% in nominal terms due to a decline in housing investment.