ANALYSTS VIEW 4-BOJ cuts 2008/09 GDP forecast to +1.2 pct

Tag : food raw materials
Japan - TOKYO, July 15 (Reuters) - The Bank of Japan said on Tuesday thenation's economy was likely to grow 1.2 percent in the fiscal yearending next March, down from its previous forecast issued in Aprilfor growth of 1.5 percent.
The BOJ said Japan's economy was slowing further on rising pricesof energy and raw materials, as well as slowing capital spendingand consumption.
The central bank also said it expected the core consumer priceindex (CPI), excluding fresh food prices, to rise 1.8 percent inthe current fiscal year, up from its April forecast for a 1.1percent rise this year.
As widely expected, the central bank also voted unanimously toleave its key interest rate target unchanged at 0.5 percent onTuesday.
The BOJ has kept monetary policy unchanged since raising theovernight call rate target from 0.25 percent in February last year.
Governor Masaaki Shirakawa will hold an embargoed news conferencelater on Tuesday, with his comments likely to come out some timeafter 4 p.m. (0700 GMT).
The central bank said it would release its monthly economic reporton Wednesday.*****************************************************************COMMENTARY:
HIROSHI SHIRAISHI, ECONOMIST, LEHMAN BROTHERS JAPAN
"The changes in growth and price forecasts did not contain anysurprises. The BOJ expects an upswing in inflation for now, whichwill hurt growth. But it does not foresee full-fledged inflationaccompanied by wage rises on the assumption that commodity priceswill not continue to rise sharply.
"We expect the Bank of Japan to keep its current policy stance fora while as it is basically more focused on downside risks to growththan inflation risks.
"I'm interested to see how (BOJ Governor Masaaki) Shirakawa willphrase his view on the balance of different risks.
"But I do not expect him to say anything that suggest a shift inthe BOJ's policy stance anytime soon."
KYOHEI MORITA, CHIEF ECONOMIST, BARCLAYS CAPITAL
"The fact that the Bank of Japan had to release revised forecastsat the mid-term review (of the semiannual outlook report) showsthat its view of the economy had been quite out of touch withreality.
"The central bank cut its GDP forecast for both fiscal 2008 and2009 but did not boost its CPI forecast much for fiscal 2009. Thatshows the bank does not see Japan's economy strengthening enough topush up prices in the long run.
"The new forecasts confirm our view that the Bank of Japan willneither raise nor cut rates any time soon. We're sticking to ourforecast that the next 25-basis-point rate rise will come some timein the first quarter of next year."
TATSUO ICHIKAWA, FIXED-INCOME STRATEGIST, ABN AMRO SECURITIES
"The BOJ cut its growth forecast for the current and next businessyear while raising its price forecasts, both of which were in linewith our projections and also within market expectations.
"The revisions will not alter market expectations for the BOJ tokeep its policy unchanged for a while.
"The revisions leave uncertainty over the growth outlook for nextfiscal year, with the possibility for growth either exceeding orfalling below the BOJ's median forecast of 1.5 percent, dependingon how the U.S. economy develops.
"The BOJ is in a very unstable position. If market conditionsstabilise into next fiscal year, there may be a possibility for arate increase given that projections for prices were raised. But ifthe U.S. economy remains sluggish into next fiscal year, there is arisk Japan may not attain 1.5 percent growth."
AKITSUGU BANDOU, SENIOR ECONOMIST, OKASAN SECURITIES
"The contents were in line with expectations. There is no impact onthe market. "They will not be able to move for a while. Based onthe results of the tankan, it will be hard to justify raisinginterest rates.
"The current monetary policy is likely to be maintained for awhile, while watching the economy and developments in the UnitedStates."
MARKET REACTION:
-- The dollar was down 0.3 percent against the yen at 105.82 yen.
-- The Nikkei share average was down 2.0 percent.
LINK:
Bank of Japan Web site: http://www.boj.or.jp/en/index.htm
BACKGROUND:
-- The BOJ has said higher costs are the main reason behind thelatest slowdown in the economy and that it is more concerned abouteconomic downside risks than accelerating inflation.
-- Data showed last week that wholesale price inflation shot up toa 27-year high of 5.6 percent in June. Core consumer prices, whichexclude fresh foods but include energy, rose 1.5 percent in May andare seen rising around 2 percent or above in the coming months.
-- The BOJ has kept its benchmark rate unchanged since February2007, when it nudged it up to 0.50 percent from 0.25 percent.(Reporting by Leika Kihara, Tetsushi Kajimoto and Hideyuki Sano;Editing by Hugh Lawson) Copyright 2008 Reuters, Click for Restriction
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