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Japan
's economy is likely to contract in the year ending March 2010, according to the governor of the Bank of Japan, who revealed in an interview that it is poised next month to reverse its forecast of a mild recovery.
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The forecast from Masaaki Shirakawa that “the economy for fiscal 2009 may turn negative” ? a downgrade from the central bank's current estimate of 0.6 per cent growth ? underscores widespread pessimism about the prospects for a quick recovery of the world's second-largest economy.
The revelation of the bank's concern about what Mr Shirakawa called “enormous” risk factors to the economy comes amid government efforts to buoy the economy, which shrank in the second and third quarters, that include a package of emergency measures announced on Friday.
However, in his first interview with a foreign newspaper since assuming the governorship in April, Mr Shirakawa was relatively relaxed about the looming prospect of a return of deflation, expected to return next year.
He stressed instead the central bank's focus on preserving the stability of the financial system, repeating a view that a mild fall in consumer prices had accompanied
Japan
's six-year growth spurt this decade.
Some economists have warned that a likely return of deflation next year could force the BoJ to cut further its already meagre 0.3 per cent policy interest rate. But Mr Shirakawa stressed that ultra-loose monetary policy in the years to 2006, when interest rates were zero, had helped stabilise the banking system but had done little to stimulate growth.
On the possible return to headline deflation, he said: “What is important is the expected inflation rate of the medium to long term.” Rising consumer prices caused by steeper commodity costs had not fed through into higher inflation expectations, he said, suggesting the reverse might be true as consumer prices fell.
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