Japanese economy to shift to expansionary phase

Japan’s economy is likely to shift to an expansionary phase this fiscal year due to improvements in domestic demand, exports and a windfall from last year’s decline in oil prices, the Bank of Japan’s chief economist has said.

Japan can continue to exceed its potential growth rate, which is from zero to 0.5%, as household spending and consumer sentiment improve, according to Eiji Maeda, head of the research and statistics department at the bank. It is likely to meet its goal of guiding inflation to 2% in the first half of fiscal 2016, so there is no need to ease policy further now, Maeda also said.

“The output gap has returned to its 10-year average and could rise above the average,” Maeda said at a seminar.

“I expect the economy to move from recovery to an expansionary phase.”

Data due this week is likely to confirm that Japan is still slowly recovering from a surprise recession last year, and if growth fails to pick up policymakers could come under pressure to take steps to stimulate the economy.

Japan’s economy is expected to have grown 0.4% during the first quarter, unchanged from the prior quarter, according to a Reuters poll of economists.

The Cabinet Office will release the data tomorrow.

• Reuters