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Pedestrians walk through a business district in Tokyo on Aug. 4, 2020.

KIM KYUNG-HOON/Reuters

Japan raised its economic growth forecast for the next fiscal year thanks to its latest stimulus package aimed at speeding up the recovery following the damage wrought by the coronavirus pandemic.

The economy is expected to grow 4.0 per cent in price-adjusted real terms in the next fiscal year starting April 2021, the latest estimate by the Cabinet Office showed on Friday.

The new estimate compared with its previous forecast of 3.4 per cent growth projected in July.

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“The economy will recover to its level of before the coronavirus by achieving a 4.0 per cent real growth rate next fiscal year,” Prime Minister Yoshihide Suga said at a government meeting to discuss economic and fiscal policy on Friday.

The upgraded economic assessment was underpinned by the government’s third supplementary budget, which was approved earlier this week, to fund the $708 billion stimulus package to help the economy recover from its COVID-induced slump in the second quarter.

The forecast 4.0 per cent growth for the next fiscal year would be the fastest annual expansion on record, if realized, since comparable data became available in 1995, the Cabinet Office said.

The government, which expects the economy will return to pre-COVID-19 levels by January-March 2022 helped by its broad policy support, also cautioned about risks.

Policy-makers need to keep a close watch “on downside risks to the economy in Japan and overseas from the pandemic and impacts from moves in financial capital markets,” an official at the Cabinet Office said.

The government will use the forecasts to finalize the state budget for the next fiscal year.

For the current fiscal year that ends in March 2021, the government cut its gross domestic product forecast to a 5.2 per cent contraction, which would be the biggest annual slump on record.

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Previously, it projected the economy to shrink 4.5 per cent.

Consumer prices will remain subdued due to weak domestic demand and the government’ discount travel campaign to support the tourism industry.

Overall consumer prices are forecast to fall 0.6 per cent for this fiscal year, from a 0.3 per cent decline expected previously.

In fiscal 2021, overall prices will grow 0.4 per cent, the government said, revised down slightly from the previous forecast of a 0.5 per cent increase.

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