Japan’s government slashed its economic growth forecast for this year largely due to weaker exports, in a sign the protracted US-China trade war is taking a bigger toll on the world’s third-largest economy.

But the forecast, which serves as a basis for compiling the state budget and the government’s fiscal policy, was still nearly twice as high as private-sector projections.

The economy is now expected to expand 0.9 per cent in price-adjusted real terms in the fiscal year ending in March 2020, according to the Cabinet Office’s projections, presented at the Council on Economic and Fiscal Policy - the government’s top economic panel.

That marked a downgrade from the government’s previous forecast of 1.3 per cent growth. The government estimated 1.2 per cent growth for the following fiscal year starting April 2020.

The government’s growth projections are more bullish than those by the private sector.

Market economists expect the economy to grow just 0.5 per cent in the current fiscal year and in fiscal 2020, the Cabinet Office said, due in part to contracting exports and the impact from a planned sales tax hike in October.

The downgrade largely stemmed from a slowdown in exports, which the government expects to grow just 0.5 per cent, compared to 3.0 per cent in the previous assessment in January.

This would make export growth for the current fiscal year the slowest since fiscal 2012, when they contracted with 1.7 per cent, according to a Cabinet Office official.

But the government saw the weakening exports being offset by robust corporate investment and private spending.

The government’s projections come ahead of the Bank of Japan’s quarterly review of its forecasts, to be released after its two-day policy meeting that concludes on Tuesday.

The Cabinet Office projected overall consumer inflation, which includes volatile fresh food and energy costs, at 0.7 per cent for this fiscal year and 0.8 per cent for the following year - remaining distant from the BOJ’s 2 per cent target.

Japan’s economy expanded at an annualised 2.2 per cent in the first quarter but many analysts predict growth will slow in the coming months due to the increasing external pressures.

Overhanging the outlook are a slowdown in China’s economy and rising global trade protectionism. Also of concern is the impact a scheduled sales tax to 10 per cent from 8 per cent in October could have on private consumption.

For fiscal 2019 and fiscal 2020, the Cabinet Office forecast nominal economic growth of 1.7 per cent and 2.0 per cent, respectively. Higher nominal growth estimates point to government expectations for greater tax revenue.

The economy of Japan is a highly developed and market-oriented economy. It is the third-largest in the world by nominal GDP and the fourth-largest by purchasing power parity (PPP) and is the world’s second largest developed economy. Japan is a member of the G7. According to the International Monetary Fund, the country’s per capita GDP (PPP) was at $38,937(2016). Due to a volatile currency exchange rate, Japan’s GDP as measured in dollars fluctuates sharply.

Accounting for these fluctuations through use of the Atlas method, Japan is estimated to have a GDP per capita of around $38,490. The Japanese economy is forecast by the Quarterly Tankan survey of business sentiment conducted by the Bank of Japan.

The Nikkei 225 presents the monthly report of top Blue chip (stock market) equities on Japan Exchange Group. Japan is the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings.

Facing increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical instruments, hybrid vehicles, and robotics. Besides the Kantō region, the Kansai region is one of the leading industrial clusters and manufacturing centers for the Japanese economy.

The size and industrial structure of cities in Japan have maintained tight regularities despite substantial churning of population and industries across cities overtime. Japan is the world’s largest creditor nation.

Japan generally runs an annual trade surplus and has a considerable net international investment surplus. As of 2010, Japan possesses 13.7 per cent of the world’s private financial assets (the third largest in the world) at an estimated $13.5 trillion. As of 2017, 51 of the Fortune Global 500 companies are based in Japan, down from 62 in 2013.

Reuters