The Japanese government cut its economic growth forecast for the current fiscal year, reflecting weaker-than-expected private consumption.
The move gives some food for thought for Prime Minister Fumio Kishida ahead of the ruling party’s presidential election in September, and the Bank of Japan as it mulls a potential rate hike.
The government lowered its real growth projection for fiscal year 2024 to 0.9% from the previous estimate of 1.3%, the Cabinet Office said on Friday. The downward revision was due to weaker private spending, according to a cabinet office official.
In addition to ongoing inflation, various one-off factors are also contributing to softer spending, including production halts by some car companies earlier this year and lingering effects from the New Year’s day earthquake, the official said.
Japan also raised its overall inflation forecast to 2.8% from 2.5% for this fiscal year, reflecting recent currency trends. The government now assumes the yen will remain around 158.8 per US dollar for the current fiscal year, much weaker than the previous view of 149.8 yen.
The Japanese currency was trading around a 38-year low for about a month, before rebounding last week after suspected government interventions.
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While the weaker economic outlook was partly driven by one-off factors, it doesn’t bode too well for Kishida as he faces the prospect of his party’s leadership election in late September.
Recent opinion polls show approval ratings for the Prime Minister’s cabinet stagnating below 30%, offering little signs of improvement. One poll showed voters don’t find the premier’s economic measures helpful in tackling inflation, including tax rebates and extra utility subsidies.
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So far, no ruling Liberal Democratic Party parliamentarians have formally declared their intention to contest the leadership election in the fall.
An All Nippon News Network poll conducted over the weekend showed the highest level of public support for Shigeru Ishiba at 27%, followed by Shinjiro Koizumi at 18% and then Kono Taro and two other lawmakers at 6%.
The government’s revised projection also complicates matters for the central bank as it mulls the possibility of hiking rates again. About one-third of BOJ watchers expect the BOJ to announce a rate increase in July, according to a Bloomberg survey last month.
In Friday’s set of growth projections, the government also presented its outlook for the next fiscal year for the first time. The economy is expected to achieve demand-led growth of 1.2% in the year beginning April 2025, supported by resilient private consumption and business investment, the government said.
Chart: Bloomberg
