Japan economy to perform better on weak yen, export recovery - Reuters poll

TOKYO Wed Feb 20, 2013 10:24am GMT

Containers are stacked up at a port in Tokyo January 24, 2013. REUTERS/Yuya Shino

Containers are stacked up at a port in Tokyo January 24, 2013.

Credit: Reuters/Yuya Shino

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TOKYO (Reuters) - Japan's economy will perform better in the coming fiscal year than earlier expected, owing to an export recovery helped by the weak yen and improving global demand, a Reuters poll showed on Wednesday.

But analysts surveyed expect prices to rise only slightly over the course of the year, despite Prime Minister Shinzo Abe's push for ambitious fiscal policy and monetary easing, dubbed "Abenomics", to reflate the economy and beat nagging deflation.

Twelve of 20 analysts in the survey also predict the country is unlikely to hit the Bank of Japan's 2 percent inflation target within the next central bank governor's five-year term.

In recent months the yen has sharply weakened to a near 33-month low against the dollar, partly helped from PM Abe's economic stance, which has also lifted share prices .N225 to a 52-month high.

The economy will grow 2.1 percent in fiscal year 2013/2014, the poll of 25 economists taken February 14-19 showed, up from 1.8 percent projected in a similar survey last month.

It was the second straight monthly upward revision and the highest growth forecast for the period since polling for it began in March last year.

In the current fiscal year ending March, the economy will grow 0.9 percent, the latest survey showed, slightly less than predicted by the previous poll in January.

"Effects from a weak yen has started to appear in some corporate earnings. Also, volume of exports will likely rise helped by a soft yen in the latter half of this year," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.

"Exports will improve cyclically led by a recovery in overseas economy especially that of China and damages to auto shipment will also improve. Prime Minister Abe's fiscal and monetary policy will be added to that environment."

Analysts upgraded their growth forecast after the economy shrank 0.1 percent between October-December, the third straight quarterly contraction, but the pace of the falls slowed down from 1.0 percent shrank in the previous quarter.

The government's 10.3 trillion yen (71.8 billion pounds) economic stimulus package and an expected surge in demand before a planned consumption tax hike April 2014 are also likely to help the economy.

Analysts said the yen has scope to weaken further after Japan escaped direct criticism of manipulating currencies to gain a competitive edge at the Group of 20 nations meeting last weekend.

A separate Reuters poll taken earlier this month showed analysts project dollar/yen will trade at 95 yen in a year. <JPY/POLL>

NEXT BOJ GOVERNOR

For now, the focus is on the appointment of the next BOJ governor to succeed incumbent Masaaki Shirakawa, who steps down with his two deputies on March 19.

In the survey, when asked who would be an appropriate candidate for the job, 10 analysts chose former BOJ deputy governor Kazumasa Iwata, while six said former top finance ministry bureaucrat and former deputy BOJ governor Toshiro Muto would likely be appointed.

The rest of the responses were divided between Asian Development Bank President Haruhiko Kuroda and an academic Takatoshi Ito. Multiple answers were allowed to this question.

Sources familiar with the selection process say a short list of BOJ governor candidates includes Muto, Haruhiko Kuroda, Japan's former currency tsar who now heads the Asian Development Bank, and Kazumasa Iwata, a former government economist and deputy BOJ governor.

"The next BOJ Governor will have to achieve 2 percent inflation goal but there is limited steps the central bank can take," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Analysts said possible steps for further monetary easing by the central bank would include an increase in its bond buying programme and scrapping the interest paid on excessive reserves parked with the central bank by financial institutions.

Finance Minister Taro Aso said on Tuesday Japan has no plans to buy foreign currency denominated bonds as part of a monetary easing plan. His comments seemed intended to moderate the tone of the debate - only on Monday Abe said buying foreign bonds was a monetary option.

Japan's core price inflation, excluding volatile fresh food costs, will rise 0.2 percent for FY 2013/2014 and will jump 2.4 percent the following year lifted by sales tax hike scheduled in April 2014, the poll showed, largely in line with the previous survey.

Fifteen of 20 analysts, in another question, said they don't see a risk of Japanese government bond yields spiking on worries the central bank may monetise its debt during the next BOJ governor's term.

Five said they can not deny a chance for the yields to jump in the future on concerns about fiscal risks.

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