January 21, 2003	Tuesday	Ziqa’ad 17, 1423

TOKYO, Jan 20: Japan’s top economic advisers said on Monday the country would take more time than earlier predicted to overcome deflation and put itself back on the track of stabler economic growth.

A report by Prime Minister Junichiro Koizumi’s Council on Economic and Fiscal Policy also stepped up pressure on the Bank of Japan (BoJ) to further ease its monetary policy.

Japan may not overcome deflation until the fiscal year to March 2006, two years later than earlier predicted, the report said.

Japan needs to extend by one year the “period of intensive adjustment,” through reforms and anti-deflation measures, to the year to March 2005, the report added.

It also pushed back by two years to the year to March 2007 the timing for Japan’s real-term growth of gross domestic product (GDP) to reach the level of about 1.5 per cent, a medium-term target of economic growth.

“It won’t be so easy to cure deflation,” Koizumi told reporters. “We will revive the economy by adding up reforms. There is no quick remedy.”

The panel said the GDP deflator, an overall gauge of price trends, will not turn positive until the year to March 2006 with a rise of 0.4 per cent after contractions of 1.5, 0.8 and 0.1 per cent.

The government and the central bank should “make efforts to bring about the earliest possible positive growth in the rate of price rises,” the report said.

“There are expectations that effective monetary policies will be taken by the BoJ,” it added, noting deflation would expand the size of debts, erode corporate profits and depress paychecks.

The central bank has been resisting growing pressure from the government and ruling parties to ease monetary policy through such a measure as an inflation target to set specific levels of prices within a given period.

The report, titled ‘Reforms and Outlook’, revised the panel’s earlier medium-term forecast on Japan’s economic and fiscal trends.

The council said it expected the economy to complete a transition to private-sector driven growth from dependence on public spending by the year to March 2005, a year later than previously expected.

The real-term GDP growth is expected to hit just 0.9 per cent in the year to March 2005 and 1.3 per cent the following year, the Council on Economic and Fiscal policy, headed by Prime Minister Junichiro Koizumi, said in its revised mid-term economic outlook.

GDP is seen to expand 0.9 per cent in the year to March 2003 and 0.6 per cent in the year to March 2004. After hitting 1.5 per cent, a growth of 1.6 per cent is forecast for the year to March 2006 and that of 1.9 per cent for the following year.

The report said the government would annually issue 40 trillion yen in bonds for four years starting in the year to March 2005 to cover tax-revenue shortfalls, it added.

Koizumi had attempted to cap bond issues in the current year to March at 30 trillion yen to rein in massive government debt, but he has been forced to break the ceiling to fund a supplementary budget to offset the effects of Japan’s prolonged slump.—AFP