Japanese consumer prices will decline for a seventh fiscal year, Bank of Japan policy makers projected, saying they remain committed to their three-year policy of zero interest rates to end deflation.

Japan's nationwide core consumer prices will probably fall 0.2 per cent in the fiscal year ending on March 31, 2005, according to the median forecast of the bank's nine board members. They had projected a decline of 0.3 per cent in their last forecast in October. The economy will expand 3.1 per cent in this fiscal year, the board said in its twice-yearly outlook released in Tokyo.

Governor Toshihiko Fukui has vowed to keep borrowing costs almost at zero until nationwide consumer prices stabilize at zero or above. The monthly nationwide core consumer price index, which excludes fresh food, was unchanged in February from a year earlier. The index has risen once since April 1998.

"It's hard to expect consumer prices will rise any time soon," Fukui said at a press conference after the bank released the forecasts.

"We will maintain our current policy stance at least until consumer prices stabilize at or above zero as we have promised, and we won't break this pledge."

Some fund managers including Gareth Evans, who helps manage US$770 million in Japanese assets as a managing director at Hawaii-based Prospect Asset Management, said the central bank's next move is to raise borrowing costs, though it's hard to predict when the bank will shift policy.

"The BOJ news today means that the next move on rates is up as the economy is now strong enough," Evans said.

The benchmark 1.5 per cent bond due in March 2014 fell 0.043 to 99.828 as of 6:05 pm yesterday in Tokyo, according to Japan Bond Trading Co. Its yield rose half a basis points to 1.520 per cent after falling to 1.485 per cent. A basis point is 0.01 of a percentage point.

The board's consumer price forecasts ranged between declines of 0.1 per cent and 0.2 per cent this fiscal year. Forecasts for economic growth ranged between expansion of 3.0 per cent and 3.2 per cent.

The policy board members forecast that corporate goods prices will rise a median 0.2 per cent this fiscal year, with the projected range between rises of 0.1 per cent and 0.3 per cent.

In its October outlook, board predicted that Japan's economy would expand 2.5 per cent this fiscal year.

(China Daily 04/29/2004 page11)