The government on Tuesday cut its forecast for Japan’s economic growth in fiscal 2014 to 1.2 percent from 1.4 percent in real terms amid lingering fears that the April 1 consumption tax hike, the first in 17 years, may continue to weigh on domestic demand.
But the Cabinet Office said the nation’s nominal gross domestic product is predicted to grow 3.3 percent in the current fiscal year through March 2015, unchanged from the previous estimate last December, with the Bank of Japan’s drastic monetary easing helping push up prices.
If the projections are realized, the rate of GDP growth would top the real, or inflation-adjusted, rate for the first time in 17 years, suggesting the world’s third-largest economy is on the verge of escaping from nearly two decades of deflation.
The office said in a statement that it will keep an eye on the aftermath of the tax increase, but the country’s economy is expected to enter a “virtuous cycle” where a rise in consumption prompts companies to increase production, leading to wage growth, resulting in more consumption as the cycle repeats.
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