07/02/2006

The End of Deflation Approaches -- Short-Term Economic Forecast (FY2005-2006)

Koichi Haji 

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In fiscal 2005， Japan's economy will grow 2.8% in real terms， led by domestic demand growth in consumption and nonresidential investment. Due partly to FRB interest rate hikes， the U.S. economy will slow to its potential growth rate of 3% by late 2006. While this will moderately ease the large current account imbalance， there is a growing risk of a sudden correction to the economy. In fiscal 2006， Japan's real economic growth rate will decline to 1.7% as exports slow， and nominal economic growth will edge up to 1.5%. While the core CPI inflation rate will climb to 0.3%， quantitative easing is not likely to be lifted earlier than summer 2006 due to the government's cautious stance.

Koichi Haji

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