TOKYO (Reuters) - The Japanese government is leaning towards cutting its mid- to long-term gross domestic product and inflation estimates in its outlook report due in January, to factor in a more realistic scenario of economic growth, government sources told Reuters.
The government currently projects nominal economic growth will reach as much as 3.9 percent for the fiscal year ending March 2021, compared with 1.1 percent growth last fiscal year. It has estimated annual consumer inflation will be stable around 2.0 percent from fiscal 2021.
But a growing number of officials see those levels as difficult to achieve, and the consumer inflation forecast would likely be lowered to 1.5 percent, the sources said on condition of anonymity because the report is not yet public.
That conflicts with the Bank of Japan’s target of around 2.0 percent consumer inflation in around fiscal 2019, which the central bank has been struggling to achieve despite more than four years of massive stimulus under Governor Haruhiko Kuroda.
In September, the core consumer price index rose 0.7 percent compared with the same month last year.
In considering a cut to the GDP estimate, government officials are also worried that overly optimistic growth projections could lead to a further worsening of Japan’s finances.
That’s because budgets would be based on those rosy assumptions but there wouldn’t be enough tax revenue if such growth failed to materialise, the sources said.
Fiscal reform is a matter of urgency in Japan, which has the industrial world’s heaviest debt burden with public debt of more than twice the size of the economy.
But Prime Minister Shinzo Abe decided to delay the government’s pledge to balance the primary budget by the year ending March 2021, and instead prioritise spending on education and childcare, following his election win last month.
Reporting by Izumi Nakagawa; Writing by Chris Gallagher; Editing by Jacqueline Wong