Japan third-quarter growth seen slowing sharply as Asian demand slumps

[October 19, 2015] By Kaori Kaneko

TOKYO (Reuters) - Japan's economy is expected to have slowed sharply in the third quarter as demand across Asia ebbed, keeping the Bank of Japan and policymakers under pressure to inject more stimulus to revitalize growth, a Reuters poll found.

The poll of 21 economists predicted the economy grew at an annualized rate of 0.4 percent in the third quarter, a significant downgrade from last month's 1.3 percent forecast.

The world's third-biggest economy shrank an annualized 1.2 percent in the April-June quarter due to weak capital spending and as Asia's locomotive China continued to lose momentum. Some analysts fear the economy may have slipped into recession.

To support growth, Prime Minister Shinzo Abe unveiled his new "three arrows" last month - a target to boost gross domestic product (GDP) to 600 trillion yen ($5 trillion), lifting the fertility rate and pursuing social welfare reforms.

Economists were largely skeptical of the impact of the new arrows on growth, with eight of the 14 analysts who responded to the question saying it won't support the economy while six took a positive view.

"In addition to weak economic data such as factory output, inflation expectations data like the BOJ's tankan survey on firms' price projections weakened in recent months," said Yuichiro Nagai, economist at Barclays Securities Japan.

Despite sputtering economic growth and persistently low inflation, Bank of Japan Governor Haruhiko Kuroda has repeatedly downplayed the need for fresh policy stimulus, remaining optimistic that domestic demand and consumer spending will recover.

Most analysts, however, doubt the BOJ can achieve its 2 percent inflation goal by the middle of fiscal 2016, and expect the central bank to offer more stimulus as global growth slows and China's economy remains in low gear.

Six of 13 analysts said the central bank would ease further at the Oct. 30 meeting. Of the rest, six expect fresh easing to occur next year, while one said the BOJ would ease again in December.

"We expect the BOJ will accept the delay in achieving its 2 percent price target because of oil price falls and we forecast the BOJ will not ease policy this month," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"Also, the yen is stable around 120 yen per dollar, which we think is another factor for the BOJ to refrain from easing."

The poll predicted core consumer price inflation - including oil products but excluding volatile fresh food prices - will rise to only 0.1 percent in the fiscal year to March 2016 and to 1.0 percent next fiscal year, unchanged from last month's medians.

Earlier this month, the BOJ held off from expanding stimulus, even as slumping exports and falling oil prices threaten its rosy projection.

($1 = 119.0200 yen)

(Polling by Khushboo Mittal and Kailash Bathija; Editing by Shri Navaratnam)

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