International | Apr 12 2006
"Steady as she goes" is the latest assessment of the Japanese economy by the Bank of Japan (BOJ), which in its monthly update has suggested economic activity continues to increase.
Encouragingly for the world’s second largest economy the increased activity has been broad-based, as while exports were higher gains were also being recorded in private consumption, capital investment and industrial production.
Evidence also continues to point to the end of deflation, though the BOJ has decided against lifting official interest rates, suggesting it intends to make sure deflation has been defeated before moving to increase rates.
The Institute for International Economics (IIE) suggests increases in rates in Japan remain likely this year, forecasting a rise of 0.5% by the end of 2006. It suggests growth should come in at about 2.75% this year and 2% next year, which is inflationary given the potential growth rate is closer to 1%. Others are even more bullish, the International Monetary Fund (IMF) forecasting Japan will achieve growth of 2.8% this year.
The BOJ is scheduled to advise of its revised (higher) growth forecast for 2006 later this month, but in the IIE’s view the likely stronger growth outcome will add to the pressure on the BOJ to lift official rates in coming months.
