International | May 26 2006
By Chris Shaw (Tokyo)
The consensus view deflation will soon be a thing of the past for the Japanese economy has gained further strength thanks to positive comments from both Standard & Poors and the OECD.
The latter has lifted its growth forecasts for Japan to 2.8% this year and 2.2% next year, compared to its estimate made last November of 2% growth in both years.
In the organisation’s view, domestic strength will play a large part in generating the stronger growth, as evidenced by its forecast for unemployment to fall to 3.5% next year from around 4% this year.
It also sees interest rates hitting 1% by the end of next year, an aggressive target given the more optimistic estimates in the market have rates of just 0.5% by the end of this year and a sign it sees the end of deflation as fast approaching.
Similarly optimistic is ratings agency Standard & Poors, who lifted its long-term sovereign rating on Japan to positive from stable to reflect the country’s stronger economic prospects.
Currency traders were encouraged by the reports and helped push the yen higher, the currency settling below 112 to the US dollar after earlier this week trading close to 113. The Nikkei has yet to benefit though, weakness in markets globally pushing it below 16,000.
