Japan cuts FY2026 growth forecast to 0.9 pc as higher oil prices weigh on economy
Tokyo, July 30
The Japanese government has lowered its economic growth forecast for the current fiscal year to 0.9 per cent from the earlier estimate of 1.3 per cent, citing the impact of higher crude oil prices on the country's import-dependent economy, according to a report by Kyodo News.
The report said the revised projection was announced in the government's midyear economic outlook released on Thursday.
According to the report, the government said the weaker Japanese yen against the US dollar and elevated crude oil prices resulting from the conflict in the Middle East pose risks to the economy. However, it noted that wage growth and personal consumption have been supported by government subsidies for energy costs.
The Cabinet Office's latest forecast expects the yen to trade at 161.4 per US dollar, compared with the earlier projection of 155.2 made in January. It also raised its crude oil price assumption to USD 92.5 per barrel, up from the previous estimate of USD 68 per barrel, the report said.
The report noted that Japan remains vulnerable to higher crude oil prices, while a weaker yen also increases import costs.
For fiscal year 2027, beginning next April, the government expects the economy to grow 1.1 per cent, supported by Prime Minister Sanae Takaichi's plans to boost investment in crisis management and strategic growth sectors.
According to Kyodo News, the government expects these measures to help strengthen personal consumption and increase capital investment.
The latest outlook, however, does not take into account the proposed two-year reduction in the consumption tax on food and beverages from April 2027 or its possible impact on inflation and businesses, the report said.
The Cabinet Office also revised its fiscal projections, estimating a 1.2 trillion yen (USD 7.3 billion) primary budget deficit for fiscal 2026, wider than the 800 billion yen (USD 4.9 billion) deficit projected in June, as additional funding was required for a supplementary budget.
The report further added that the government expects the primary balance to return to a 1.4 trillion yen (USD 8.5 billion) surplus in fiscal 2027 under a scenario of stronger economic growth, despite additional spending aimed at boosting investment.
— ANI
Reader Comments
Interesting how they're projecting a surplus by 2027 with stronger growth. But the consumption tax reduction plan is tricky—good for consumers, bad for revenue. Japan's fiscal discipline is admirable though. Our own fiscal deficit debates could learn from their transparency.
With Middle East tensions, every oil-importing nation is feeling the pinch. Japan's 0.9% growth vs our 6%+ is a stark reminder of how aging populations and energy dependence can flatten an economy. Their wage growth is good, but our demographic dividend is our real strength.
The 1.2 trillion yen deficit projection is concerning—that's over $7 billion! But I credit them for being realistic. India's GDP growth is strong, but our own deficit figures need similar honesty. The energy subsidy approach is something we should study for our vulnerable populations.
If Japan, with all its technology and efficiency, is struggling with oil prices, what about developing nations? The Middle East conflict is hitting everyone hard. Their 1.1% growth target for 2027 seems optimistic given global headwinds. We should accelerate our renewable energy push.
We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.