As a result of rising import costs caused by the weak yen, Japan’s government cut its growth forecast for this year on Friday, highlighting the fragile nature of the economic recovery. However, it maintained its belief that the economy will sustain a domestic demand-led recovery and predicted that robust capital expenditure and consumption would accelerate growth in the coming year.
However, some members of the government’s top economic council expressed concern about recent consumption weakness and household pain caused by the yen’s fall.
“We can’t overlook the impact a weak yen and rising prices are having on households’ purchasing power,” the private-sector members of the council said at the meeting on Friday where the new growth forecasts were discussed.
They stated, “The recent yen declines must guide policy with a close eye on the government and the Bank of Japan.” According to the Kyodo news agency, Prime Minister Fumio Kishida said at the meeting that the government needs to be careful about how the economy could be affected by rising prices caused by a weak yen.
In January, the government announces its economic growth projections, which are then revised around July. They form the foundation for the state budget. The government decreased its forecast for economic growth for the current fiscal year that will end in March 2025 from 1.3% in January to 0.9% in the revised estimates.
The government’s hopes that expanding wage hikes, tax cuts, and an extension of fuel subsidies will increase consumer spending are reflected in the new forecast, which is higher than private-sector forecasts for growth of 0.4 percent. The estimates showed that the government expects the economy to grow by 1.2% in fiscal 2025.
While a powerless yen gives exporters a lift, it has turned into a wellspring of worry for policymakers as it harms utilization by expanding the expense of fuel and food imports. The market is now focused on whether or not the Bank of Japan will raise interest rates at its two-day policy meeting on July 31. It is thought that the government intervened on multiple occasions this month to slow the decline of the yen.
According to sources who spoke with Reuters, the BOJ is also likely to lower its growth forecast for this fiscal year at the meeting. This is a rare unscheduled downgrade to historical GDP figures. In the current fiscal year, it anticipates growth of 0.8 percent.
