The world’s third-largest economy rebounded last quarter after shrinking in 2011 with the impact from a record earthquake, and is forecast to moderate as a bump from reconstruction diminishes. Governor Masaaki Shirakawa and his BOJ colleagues today will boost a government-bond purchase program by at least 5 trillion yen ($62 billion), a Bloomberg survey shows.

“Japan’s economy is on a recovery path but the production data suggest it’s not that strong a pickup,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. “Growth in consumer prices shows that there is still distance to achieve 1 percent inflation, so the BOJ will probably have to ease more. They could raise inflation expectations by setting a higher inflation rate for a target.”

The yen was little changed after the economic data, trading at 81.05 per dollar at 10:44 a.m. in Tokyo. The Nikkei 225 Stock Average rose 0.1 percent to 9,560.13.

Production Forecast

Today’s output report also showed that manufacturers forecast a month-on-month rise in production of 1 percent in April and a 4.1 percent fall in May. Takuji Okubo, chief Japan economist at Societe Generale SA in Tokyo, said the May outlook was “devastating.”

“It seems as if manufacturers have given up trying to go back to pre-quake production levels,” Okubo said. “Because of the yen and weak demand overseas, they don’t think exports are going to expand.”

Last month’s advance in consumer prices was propelled by higher energy costs, with household goods damping the gain, today’s statistics bureau report showed. Shutdowns of Japan’s nuclear reactors since the quake and tsunami have deepened the nation’s reliance on imported fuel, boosting energy costs.

Retail sales also missed analysts’ forecasts today, with purchases down 1.2 percent in March from the previous month, compared with the median estimate for a 0.5 percent drop. A separate report showed that the unemployment rate held at 4.5 percent last month.

South Korea Surplus

Earlier today, a report showed South Korea’s current- account surplus widened in March to a four-month high as overseas shipments of cars, electronics and oil products rose. The excess was $3 billion, compared with $557 million in February. China said profits of its industrial companies advanced in March after a drop in the previous two months.

In the U.K., consumer confidence was unchanged this month and is unlikely to improve after data this week showed the economy slid into its first double-dip recession since 1975, GfK NOP Ltd. said.

In Europe, inflation in Spain, which had its credit rating cut yesterday, probably held at the slowest pace since August 2010. Consumer prices, based on European Union calculations, rose 1.8 percent in April, according to the median estimate of economists surveyed by Bloomberg News.

In the U.S., gross domestic product rose at a 2.5 percent annual rate in the first quarter after advancing 3 percent in the previous three months, according to the median forecast of 85 economists surveyed by Bloomberg before a Commerce Department release today.

The Bank of Japan’s inflation forecast, also due today, may show the 1 percent goal adopted in February remains elusive. Groups of lawmakers have pressed the central bank for aggressive steps to spur growth and shake off more than a decade of deflation.

Shirakawa Message

Shirakawa has sought to contain expectations for monetary action in the face of political pressure, action that former central bank board member Atsushi Mizuno indicated this month was muddying the BOJ’s public message. In a speech in the U.S. earlier this month, Shirakawa said that central banks “cannot reasonably deliver solutions to structural issues” and that the key challenge for Japan is rapidly changing demographics.

Even so, with market participants and analysts anticipating action today, it’s unlikely the bank will stand pat, Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo, said in an interview with Bloomberg Television.

“This is very high on the market expectations -- I don’t think that they would risk to do anything less than is expected,” Schulz said. “Big government programs that are still coming won’t be enough to pull the economy.”

Japan’s exporters have contended with a surge in the yen alongside tepid demand abroad as developed nations struggle to gain momentum from the 2008-2009 global recession and China’s expansion moderates. Nintendo Co., the world’s largest maker of video-game machines, yesterday forecast profit that fell short of analysts’ estimates. The company is recovering from its first annual loss since it listed in 1962.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

http://www.bloomberg.com/news/2012-04-27/japan-production-rises-less-than-forecast-as-boj-meets.html

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