Consumer prices to stop falling in FY 2011, 1st time in 3 yrs: BOJ+

TOKYO, April 30 Kyodo -
The Bank of Japan said Friday it projects that the nation's consumer prices
will stop falling next fiscal year for the first time in three years and hinted
at providing new support to banks to boost the economy and help ensure an end
to deflation.
At a one-day policy meeting, BOJ Governor Masaaki Shirakawa decided to instruct
bank staff to examine ways to support private financial institutions via fund
supplies to strengthen ''the foundations for economic growth,'' the central
bank said in a statement after keeping the key interest rate at 0.1 percent.
According to the BOJ's semiannual ''Outlook for Economic Activity and Prices''
report released the same day, the central bank now projects that the core
consumer price index, which excludes volatile fresh food prices, will rise 0.1
percent from the previous year in fiscal 2011, instead of its previous forecast
in January of a drop of 0.2 percent.
''The Japanese economy is steadily moving forward to escape from deflation,''
Shirakawa said at a press conference, pointing to the economy's improving
condition on the back of an increase in exports especially to emerging
countries.
He added that although deflationary pressure is expected to ease going forward,
it is necessary to mend the fundamental cause behind deflation, which he
identified as falling expectations for Japan's economic growth on the back of
an aging society combined with fewer children.
''We intend to support the private sector by using the functions we have,'' the
BOJ chief said.
Defeating deflation is still a ''critical challenge'' for Japan's economy, the
BOJ said, and it intends to maintain a very easy monetary policy to that end.
For fiscal 2010 which began April 1, the BOJ maintained its projection for the
core CPI, adjusted to exclude special effects from the introduction of free
tuition at senior public high schools, at a fall of 0.5 percent. In fiscal
2009, the core CPI fell a record 1.6 percent.
The BOJ revised upward its projection for the nation's real gross domestic
product to a rise of 1.8 percent for fiscal 2010 from a rise of 1.3 percent
previously forecast in January. But it slightly cut the GDP projection for
fiscal 2011 from an expansion of 2.1 percent to growth of 2.0 percent.
The report said Japan's exports are likely to continue increasing on the back
of strong growth in emerging and commodity-exporting economies, and capital
investment by companies is also likely to pick up with the recovery in
corporate profits, which is likely to lead to an improvement in consumption
through a recovery in the job market.
As to risk factors for the nation's economy, the report pointed to surging
public debt in Japan and other advanced economies. It said downward pressures
on the economy could arise through adverse effects on financial markets, such
as substantial fluctuations in long-term interest rates.
To support the economy, the BOJ chief instructed his staff to report back on
what the BOJ could do to strengthen the economy.
Masamichi Adachi, senior economist at JPMorgan Securities Japan Co., said the
BOJ's decision to mull further economic support at this time when it sees
diminishing deflationary pressure ''clearly shows that the BOJ is speeding up
efforts to have Japan escape from deflation.'' ''It seems that the BOJ is
concerned more about the need for strengthening the foundations for economic
growth.''
''Although what specific measures will be taken is uncertain, it might have
been important for the BOJ to send out that message, rather than the content of
the measures,'' Adachi added.
Earlier Friday, government data showed the nation's core CPI fell 1.2 percent
in March from a year earlier, declining for the 13th consecutive month, and the
jobless rate in March deteriorated to 5.0 percent from 4.9 percent in February.
The BOJ has kept the key interest rate at a razor-thin 0.1 percent since
December 2008 and introduced a facility offering low-interest funds to banks in
December, which it then expanded in March.
Friday's vote to maintain the target rate for unsecured overnight call money
was unanimous by the BOJ's eight-member Policy Board.
The BOJ issues the report on the economy and prices every April and October,
and reviews the report in January and July respectively, revising it if
necessary.
==Kyodo
2010-04-30 23:28:27


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