The Japanese government forecast on Saturday that real gross domestic product will grow by 1.4 % instead of 2.6 % growth for the current year as a planned sales tax increase is seen dampening consumption.
The forecast is part of the annual budget review. The government projects about Y50tn ($480bn) in tax revenue for the coming fiscal year based on the growth forecast.
While higher sales tax is expected to curb consumption, the government expects positive economic growth thanks to the effects of a fiscal and monetary stimulus.
The national sales tax is set to rise to 8 per cent in April and could rise to 10 per cent in 2015 if the government of Prime Minister Shinzo Abe goes ahead with its fiscal consolidation plan.
The government also forecast that consumer prices will rise by about 1.2 per cent in the 2014 fiscal year, without considering an impact from the sales tax hike. Consumer prices are expected to show a rise of 0.7 per cent in the current fiscal year. The Bank of Japan launched a massive monetary stimulus programme aimed at pushing the inflation rate up to 2.0 per cent in two years, in a bid to wrench the country out of a long phase of deflation.
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