Japan cuts this year's growth outlook as higher energy costs weigh

By Makiko Yamazaki

TOKYO, July ‌30 (Reuters) - Japan's government ​cut ​its economic growth forecast for the current fiscal year on Thursday, as higher oil prices linked to Middle East tensions ‌squeeze household spending and corporate profits.

In its mid-year estimates, the ⁠Cabinet Office projected inflation-adjusted gross domestic product (GDP) growth of 0.9% for the fiscal year ‌ending March 2027, down from ‌a 1.3% expansion projected in January.

However, growth is forecast to accelerate to 1.1% in the following fiscal year on the back of strong ​capital expenditures and private consumption, according to the Cabinet Office.

The weaker outlook for this fiscal year highlights the strain rising energy costs ⁠are placing on an economy heavily dependent on imported fuel.

Private consumption is now expected to rise ​0.9% in fiscal 2026, less than the 1.3% increase projected in January, while capital expenditure is seen growing 2.3%, ​versus a previous forecast of 2.8%.

Consumer inflation ‌is projected to be 2.2% in fiscal 2026, above the government's January estimate of 1.9%, reflecting the impact of ⁠higher energy costs.

The government forecast nominal wages to rise 3.1% annually through fiscal 2027, keeping real wage growth positive despite persistent inflation.

The Cabinet Office said the ⁠primary budget balance is projected to return to a 1.4 trillion yen ($8.6 billion) surplus ​in fiscal 2027, despite the government's reduced emphasis on the primary balance as a benchmark of fiscal discipline.

Except for the asset bubble period between 1986 and 1991, Japan's ‌primary budget balance has been in deficit for most of the postwar era, resulting in a vast debt ‌pile more than twice the size of the economy, the largest among ⁠developed economies.

Plans to return to a ‌budget surplus — a goal ​first introduced in the early 2000s — have been pushed back multiple times.

($1 = 163.5800 yen)

(Reporting by Makiko Yamazaki; Editing by ‌Kevin Buckland)

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