FT Syndication Service
TOKYO: The Japanese economy will this year grow at its slowest rate for five years as a result of lower global growth and rising energy and commodity costs, the International Monetary Fund (IMF) has said.
The IMF expects Japanese economic growth of 1.4 per cent this year, with much of it coming from exports to emerging economies as the US sputters and domestic consumption and business spending slow.
Exports, which have been a big driver of growth in Japan's economic recovery, have been surprisingly resilient in the face of a slowdown in the US, one of its main trading partners, thanks to demand from China, the Middle East and other emerging regions.
"There is an upside risk coming from the continuing strength of the emerging markets through the support that the robust conditions in these countries are providing to exports," said Daniel Citrin, a deputy director at the IMF.
"But even there, the extent of the upside surprises are probably diminished compared with [upside] risks that prevailed several months ago."
Mr Citrin said the economy would probably expand 1.5 per cent in 2009 as domestic consumption started to recover. Underlying inflation should remain "subdued", with inflation expectations "well anchored".
The IMF supported the Bank of Japan's recent decisions to keep interest rates on hold in the face of a slowing economy, and praised the bank for its "flexible" approach to meeting liquidity needs in the money markets.
Mr Citrin urged Tokyo to do more to reduce public debt, saying its current medium-term targets were "unambitious", and repeated calls for an overhaul of the tax system, including an increase in consumption tax and a broadening of the income tax base.
Household spending held up well in the first quarter, the latest government data showed, and wages are beginning to eke out some monthly gains.
But it is not clear whether these gains are sustainable in the face of higher prices and pessimistic consumer confidence data.
Surging energy charges have driven up Japanese consumer prices. However, after removing energy and food costs, core inflation remains at 0.1 per cent, suggesting there is little domestic demand driving the price increases.
April trade data, released on May 21 last, showed exports rising 4.0 per cent from a year earlier, but the pace of growth appeared to be slowing, particularly to the European Union. Shipments to China showed healthy double-digit growth.
