Japan has forecast slightly faster growth in the next financial year on the back of stronger domestic demand, while the central bank kept super-low interest rates in place.
The government predicted 2% growth in the year to March 2008 in real terms, the sixth straight year of expansion and a notch above the revised 1.9% estimated for the current year.
In an outlook approved by the cabinet, the government expected the economy to continue its gradual recovery in the next fiscal year, led by domestic private demand and strong corporate earnings. The study also forecast the first growth in a decade in inflation, after a long battle with falling prices.
But the government revised downward its economic growth forecast for the current fiscal year to a real 1.9% from its earlier estimate of 2.1% as consumer spending has weakened since the summer.
The Bank of Japan's policy board later agreed unanimously to keep the benchmark cost of borrowing at 0.25%, declining to raise rates for the first time in six months. In its last rate hike in July, the Bank of Japan ended its unorthodox five-year policy of holding borrowing costs at zero in a bid to stimulate the economy and end deflation.
