POLL - Japan 2010/11 growth revised up as optimism grows

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The Japanese economy's stronger-than-expected performance in January-March compelled economists to revise up their growth forecasts for the fiscal year to next March, a Reuters poll showed.But they still expect a slowdown in growth in April-June as the impact of government stimulus fades, while Europe's debt problems and a subsequent rise in the yen against the euro have clouded the outlook for the export-reliant economy.Economists now expect Japan to pull out of deflation next fiscal year, ending in March 2012, but stuck to their forecast that the Bank of Japan (BOJ) will keep its benchmark interest rate near zero until at least the end of next year.Japan's gross domestic product (GDP) will grow 2.5 percent in fiscal 2010/11, the median estimate of the poll of around 25 economists taken over the past week shows, faster than 2.2 percent growth forecast in the May survey.The upgrade comes as the economy grew 1.2 percent in January-March from the previous quarter, outpacing the growth of the United States and Europe, on robust exports to emerging Asian markets.The government may also raise its projection for economic growth this fiscal year to between 2 and 3 percent, from an earlier estimate of 1.4 percent, the Nikkei business daily reported last week.In the Reuters poll, the economy is forecast to slow to 0.4 percent growth in April-June and then slow again to 0.3 percent in July-Sept before returning to 0.4 percent in the final three months of 2010. Roughly in line with last month's survey."The slowing in the recovery is based on the fact that consumption-related policies that have been implemented have run their course," said Kyohei Morita, chief economist for Japan at Barclays Capital in Tokyo."It doesn't mean we are seeing something new that is bad. Something good is just tapering off. We are thinking about Asia's exposure to Europe, but we don't think it's a factor to stop the recovery."Japan pulled out of recession in April-June last year, helped by a rebound in exports and industrial output as well as a rise in consumption due to government stimulus measures including subsidies on energy-efficient cars and consumer electronics.But these subsidies are scheduled to expire in September and December.The new government led by Prime Minister Naoto Kan plans to flesh out a new economic strategy, possibly on Friday.To cooperate with the government, the Bank of Japan said Tuesday it would lend up to $33 billion to commercial banks in a new loan scheme aimed at redirecting money to industries with growth potential.But analysts doubt the scheme's effect in supporting the fragile economic recovery."Private banks are eager to lend money to growth sectors, but if there was such demand, loans would have already increased," said Seiji Shiraishi, chief economist for Japan at HSBC Securities in Tokyo."The reason why loans aren't growing is a lack of money demand. The BOJ's assistance may not lead to a good result."Economists in the Reuters poll expect core consumer prices, which exclude fresh food, to fall 0.9 percent in the year to March 2011, unchanged from the previous month's survey, and show flat prices in the year to March 2012, up from minus 0.1 percent.Japan has been mired in deflation for much of the past decade.The BOJ is not seen raising interest rates from 0.1 percent until at least 2012, a wider survey of over 50 economists shows.For graphic comparing U.S., euro zone, UK and Japan growth outlooks, click: http://r.reuters.com/kaw32mFor graphic comparing U.S., euro zone, UK and Japan inflation outlooks, click: http://link.reuters.com/gew32m
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