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(Reuters) – TOKYO, July 8 (Reuters) – According to sources, the Bank of Japan is set to lower its economic growth prediction for this fiscal year in new quarterly projections due out next week, as the potential of another state of emergency for Tokyo threatens to dampen demand. According to four sources familiar with the central bank’s thinking, the central bank is likely to maintain its assessment that the world’s third-largest economy is on track for a moderate rebound, as strong exports and output offset some of the weakening in consumer demand. Slow vaccination rollouts and a spike in infections forced authorities to announce a state of emergency for Tokyo just 16 days before the Olympic Games begin, highlighting Japan’s battle to combat the COVID-19 pandemic. find out more “The fundamentals of a recovery are in place,” one of the individuals said, “but the timing may be delayed somewhat” because the curbs are weighing on the economy’s predicted return in the current quarter. Three other sources agreed. In April, the BOJ predicted that the economy will grow 4.0 percent in the current fiscal year, which ends in March 2022, compared to 3.6 percent predicted in a Reuters poll. find out more The BOJ is expected to decrease the current year’s growth prediction in updated quarterly and inflation projections at its policy meeting on July 15-16, according to sources. It is also largely believed that monetary policy will remain unchanged. According to the sources, the BOJ will likely raise its consumer inflation projection for this fiscal year in the revised estimates, owing to the boost from recent increases in energy costs. Analysts predict that growth projections for the next fiscal year, which ends in March 2023, will be heavily influenced by when people feel secure enough to increase spending on leisure and travel. According to the central bank, the economy would grow by 2.4 percent next fiscal year and 1.3 percent the following year. According to the BOJ, households accumulated 20 trillion yen ($182 billion) in “forced” savings last year as a result of stay-at-home regulations, which might be tapped when vaccines are extensively implemented. As a result of the pandemic’s impact on service consumption, Japan’s economy declined by 3.9 percent on an annualized basis in January-March and is expected to barely grow in the second quarter. Analysts and officials had hoped for a strong comeback in the economy in the second half of this fiscal year, in part because consistent vaccinations and the removal of tariffs would stoke pent-up demand for leisure and travel. (1 dollar = 110.0400 yen) Takahiko Wada and Leika Kihara contributed reporting.
Shri Navaratnam edited the piece.
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