TOKYO, July 15

Japan’s central bank today cut its annual growth and inflation forecasts for the world’s third-largest economy, with analysts warning weaknesses remained and the downgrade hinted at a disappointing second quarter.

After a two-day policy meeting, the Bank of Japan (BoJ) said Japan’s economy would expand 1.7 per cent in the fiscal year to March 2016 while inflation would come in at 0.7 per cent.

That was down from two per cent and 0.8 per cent, respectively, estimated earlier this year.

While the bank kept up its view that Japan’s economy was ‘expected to continue recovering moderately’, it acknowledged that a pick-up in exports and industrial production had seen ‘some fluctuations’.

Hideo Kumano, senior economist at Dai-ichi Life Research Institute, said trimming the growth forecasts ‘probably means growth in the April to June quarter was not very good’. Official second-quarter GDP data are due next month.

BoJ policymakers have been scaling back their expectations and Governor Haruhiko Kuroda has conceded that an ambitious two per cent inflation target was still some way off.

The economy expanded one per cent in January to March after limping out of recession in the last three months of 2014, and business confidence remains strong.

But consumer spending has struggled after a sales tax rise last year and economists widely expect the BoJ to ramp up its easing programme, likely later this year, to bring Japan closer to its inflation target.

The target is a cornerstone of Prime Minister Shinzo Abe’s drive to conquer years of stagnant or falling prices and revive the economy.

Today, the BoJ stood pat on its record asset-purchase programme, which is pumping about 80 trillion yen ($648 billion) into the financial system annually in a bid to jack up prices and kickstart growth.