HONG KONG — The Bank of Japan slashed its economic growth forecast Thursday in the aftermath of the natural disasters that hit the country last month but refrained from announcing fresh steps to stimulate the economy — a sign that the central bank expects rebuilding activity to lead to solid growth again later this year.
The bank said it now expected the Japanese economy, the world’s third-largest, after those of the United States and China, to expand only 0.6 percent in the current business year, which ends March 31, 2012. That is down from the rate of 1.6 percent the bank had forecast in January.
“As a result of the disaster, the economy will inevitably continue to face strong downward pressure for the time being,” the bank said.
Corporate profits are likely to fall significantly, and private consumption and business investment will remain weak for some time, the bank added.
Bleak data published separately Thursday underlined the economic weakness created by the March 11 earthquake and tsunami and the nuclear crisis and supply chain disruptions that followed. Industrial output in March fell a record 15.3 percent from the previous month, according to the trade ministry.
“Today’s data releases provide another powerful reminder of the devastating effect of Japan’s recent disaster,” Frederic Neumann, a regional economist at HSBC in Hong Kong, commented in a research note. “While data will look better from here on, the Bank of Japan will still need to announce additional monetary easing measures this quarter to abet the recovery.”
In a bid to calm a near panic in the financial markets immediately after the earthquake, the Bank of Japan flooded the markets with liquidity and expanded a program to purchase government and corporate bonds.
This month, the bank announced a loan program totaling ¥1 trillion, or $12.2 billion, to help financial institutions in the disaster area extend reconstruction-related loans.
On Thursday, the central bank left its key interest rate at zero to 0.1 percent, as had been widely expected, in a bid to help the recovery. But it announced no additional measures, saying it wanted to assess the effect of its previous steps before taking more action.
“The B.O.J. took the decisive step of increasing asset buying in March, and actual purchases have only just begun,” Masaaki Shirakawa, the central bank governor, said, according to Reuters. “It’s important to examine the effects of the move for the time being.”
The bank also struck a positive note on the prospects for recovery later this year and raised its forecasts for growth during the financial year that starts in April 2012 to 2.9 percent, from an earlier forecast of 2 percent.
Like other forecasters, the bank expects the Japanese economy to rebound once rebuilding gets under way in earnest and power supplies and the flow of components and spare parts in the manufacturing sector get back to normal. Unlike the situation during the global financial crisis, economies elsewhere are growing, meaning that international demand for Japanese goods remains solid.
“From the beginning of autumn 2011, supply-side constraints are likely to ease,” the central bank wrote. “Moreover, efforts to restore capital stock damaged by the earthquake disaster are projected to gradually provide a boost to Japan’s economy.”
Still, the government and the central bank will need to provide support to affected areas, and the Japanese economy as a whole, for months to come.
Hampered by an aging population, high government debt and intermittent deflation, the Japanese economy is unlikely to expand much more than 1 percent per year in the medium term, even as the effects of the March disasters wane, the ratings agency Standard Poor’s said Wednesday.
That makes Japan one of the slowest-growing developed countries in the world.
Japan is also a laggard within Asia, where developing nations like China and India are expanding at rates not far off 10 percent a year.
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