Bank of Japan has slashed its economic forecast for 2011

The Bank of Japan has slashed its economic forecast for 2011 : The Bank of Japan has slashed its economic forecast for 2011 due to last month's earthquake and tsunami.

In a statement issued on Thursday the central bank says the policy board expects a 0.6 per cent growth in real gross domestic product for this fiscal year from a previous projection of 1.6 per cent made in January.

For the fiscal year starting 1 April 2012, the bank predicts a 2.9 per cent expansion, compared with 2 per cent growth expected in January. Going forward, Japan's economy is expected to return to a recovery path, but the pace of recovery is likely to remain moderate.

The BOJ says: "In these circumstances, if firms and households expect a continued decline in prices, this might exert downward pressure on actual prices, together with wages.

"In addition, if the year-on-year rate of change in the consumer price index (CPI) is revised downward with the base-year change scheduled for August 2011, attention needs to be paid to whether this affects firms' and households' inflation expectations."

The bank's policy board also forecasted the core CPI will rise 0.7 per cent this fiscal year, compared with a 0.3 per cent increase expected in January. The median forecast for FY2012 comes to a 0.7 per cent increase versus a 0.6 per cent rise predicted in January.

The Bank has also made clear that it will continue the virtually zero interest rate policy until it judges on the basis of the understanding that price stability is in sight.

The devastating earthquake resulted in the loss of a large number of production facilities in widespread areas directly affected by the disaster. In addition, difficulties in procuring materials and parts have disrupted supply chains on a national scale.

Dwelling on this issue the bank said the economic outlook greatly depends on when and at what pace the various supply-side constraints, including power shortages, are resolved.

By the beginning of autumn 2011, supply-side constraints are likely to ease as the reconfiguration of supply chains will likely have made further progress and the balance of electricity supply and demand starts to improve.

If this happens, improvements in overseas economies will lead to increases in Japanese exports and production, which in turn will once again clearly... For the latest updates PRESS CTR + D or visit Stock Market news Today

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