Japan's central bank slashes FY 2011 growth forecast

17:01, April 28, 2011      

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The Bank of Japan (BOJ) on Thursday slashed its economic forecast for fiscal 2011 due to the impact of last month's devastating earthquake and tsunami.

Japan's central bank said its policy board currently expects a 0.6 percent growth in real gross domestic product for the fiscal year that started April 1, from a previous projection of 1.6 percent made in January.

The devastating March 11 earthquake and tsunami that struck east and northeastern regions of Japan caused severe damage to production facilities in the region and also knocked out key infrastructures, leading to broad scale supply chain disruptions nationwide that have also had an adverse affect on global supplies from Japan to overseas markets, the bank said.

In addition, the nuclear crisis at a power plant in Fukushima prefecture, coupled with damaged caused to other power providers, has led to sizable electricity shortages which the central bank has factored into its economic forecast for the nation.

However, in its biannual outlook report, the BOJ said on Thursday that following strong downward pressure facing the nation in the first half of fiscal 2011, the economy is set to show signs of recovery in the latter half.

"Japan's economy is likely to recover at a faster pace throughout the second half, partly due to a rebound from the first half, on the back of clear increases in exports and production," the report said.

In the report the bank upgraded economic growth for the fiscal year starting on April 1, 2012, to 2.9 percent from a previous forecast in January for a 2.0 percent expansion.

The BOJ cited increase domestic demand triggered by reconstruction efforts as contributing to the expected increase in fiscal 2012.

The bank's policy board on Thursday also announced that the country's core consumer price index will increase 0.7 percent this fiscal year, from an earlier assessment in January for a 0.3 percent increase.

As for fiscal 2012, the bank said it expects the price index to increase by 0.7 percent, compared to an earlier prediction for a 0. 6 percent rise.

The central bank's policy board decided at its one-day meeting today to hold its key rate at between zero and 0.1 percent and unveiled details of its 12 billion U.S. dollar lending scheme rolled out earlier this month to ensure Japanese banks and financial institutions have enough liquidity to lend to each other to facilitate reconstruction projects.

The BOJ said that banks can borrow up to 1.82 billion U.S. dollars in one-year loans at an interest rate of a razor-thin 0.1 percent.

Source: Xinhua
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