[1/3]Price tags of items are displayed at a vegetable shop in Tokyo, Japan, July 28, 2026. REUTERS/Manami Yamada
TOKYO, July 30 (Reuters) - Japan's government cut its economic growth forecast for the current fiscal year on Thursday, as higher oil prices linked to Middle East tensions squeeze household spending and corporate profits.
In its mid-year estimates, the Cabinet Office projected inflation-adjusted gross domestic product (GDP) growth of 0.9% for the fiscal year ending March 2027, down from a 1.3% expansion projected in January.
However, growth is forecast to accelerate to 1.1% in the following fiscal year on the back of strong capital expenditures and private consumption, according to the Cabinet Office.
The weaker outlook for this fiscal year highlights the strain rising energy costs are placing on an economy heavily dependent on imported fuel.
Private consumption is now expected to rise 0.9% in fiscal 2026, less than the 1.3% increase projected in January, while capital expenditure is seen growing 2.3%, versus a previous forecast of 2.8%.
Consumer inflation is projected to be 2.2% in fiscal 2026, above the government's January estimate of 1.9%, reflecting the impact of higher energy costs.
The government forecast nominal wages to rise 3.1% annually through fiscal 2027, keeping real wage growth positive despite persistent inflation.
The Cabinet Office said the primary budget balance is projected to return to a 1.4 trillion yen ($8.6 billion) surplus in fiscal 2027, despite the government's reduced emphasis on the primary balance as a benchmark of fiscal discipline.
Except for the asset bubble period between 1986 and 1991, Japan's primary budget balance has been in deficit for most of the postwar era, resulting in a vast debt pile more than twice the size of the economy, the largest among developed economies.
Plans to return to a budget surplus — a goal first introduced in the early 2000s — have been pushed back multiple times.
($1 = 163.5800 yen)
Reporting by Makiko Yamazaki; Editing by Kevin Buckland
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