The Bank of Japan recently released its annual "outlook report." As suggested by its title, the report summarize the bank’s forecasts for future economic growth. With regard to the year 2005, the bank lowered both its forecasts for growth and inflation. In spite of a global economic recovery over the last couple years, Japan’s economy may actually contract this year. At .1%, inflation is a non-issue. Japan’s Central Bank has kept interest rates low, so as to encourage investment, and maintain low borrowing costs for Japanese firms. None of these measure have been able to stimulate the economy, however. The Bank of Japan also released its forecasts for 2006, which were quite bullish. Many economists, however, take these predictions with a grain of salt, and view them as political- rather than economic- statements. Morgan Stanley reports:

The Bank aims to preserve market expectations for an exit strategy by its bullish forecast together with the suggestion about the reduction of the current account balance, thereby avoiding an over-reaction by the market. Also, the Bank has a track record of trailing economic turning points due to its stubbornness.

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