Japan lowers growth forecast as weak Yen impacts consumption

Japan's government cut its growth forecast for the current fiscal year, driven by a consumption slowdown because of the rising import costs related to a weak yen.

The updated forecast issued Friday expects the economy to grow 0.9 per cent in the fiscal year ending March 2025, down from 1.3 per cent projected in January.

Though it has cut the forecast, the government still projects the economy to grow 1.2 per cent in fiscal 2025 on the back of solid capital expenditure and an expected consumption uptick.

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These are revised estimates much more upbeat than some private sector forecasts calling for growth of only 0.4 per cent.

Members of the government's top economic council expressed their worry about how the weak yen was weakening household purchasing power.

They said that rising prices, partly due to a weakened yen, were partly putting an overall chill in consumption.

"We can't overlook the impact a weak yen and rising prices are having on households' purchasing power," the council members said in the meeting discussing new growth projections.

It also includes Prime Minister Fumio Kishida adding warnings over the economic impact of higher prices, saying that the government is required to be extremely careful about the effects that the weak yen is going to have on the economy, the Kyodo news agency reported.

The revised forecasts by the Japanese government of annual economic growth, published in January and revised around July each year, are core factors in state budget planning.

The latest revision portrays deeper concerns about the fragility of the economy amid global uncertainties.

While the weak yen has been a boon to make exporters' products cheaper abroad, it has also driven up costs at home for fuel and food imports that hit consumers hard.

Moves believed to have been made by the government this month several times to stem the yen's fall continue in full swing.

Attention turns to whether the Bank of Japan will hike interest rates in its upcoming policy-setting gathering on July 31.

The BOJ is also likely to cut its growth forecast for the current fiscal year after a rare unscheduled downgrade of historical GDP figures earlier this month.

The central bank now forecasts growth of 0.8 per cent for the fiscal year.

(With inputs from Reuters)