TOKYO, July 30 — Japan's government has cut its economic growth forecast for the fiscal year ending March 2027, citing the impact of higher oil prices connected to tensions in the Middle East that are squeezing household spending and corporate profits.

In its mid-year estimates, the Cabinet Office projected inflation-adjusted GDP growth of 0.9% for fiscal 2026, down from a 1.3% expansion forecast in January. However, growth is expected to accelerate to 1.1% in fiscal 2027, supported by strong capital expenditures and private consumption.

Private consumption is now forecast to rise 0.9% in fiscal 2026, lower than the earlier 1.3% estimate, while capital expenditure growth is revised down to 2.3% from 2.8%. Consumer inflation is projected at 2.2%, up from 1.9%, reflecting the effect of increased energy costs.

The government also anticipates nominal wages to grow 3.1% annually through fiscal 2027, maintaining positive real wage growth despite ongoing inflation.

The Cabinet Office further stated that Japan's primary budget balance is projected to return to a surplus of 1.4 trillion yen ($8.6 billion) in fiscal 2027, despite a reduced emphasis on this metric as a fiscal discipline benchmark. Historically, 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, contributing to a debt pile more than twice the size of its economy—the largest among developed nations.

Plans to achieve a budget surplus, first introduced in the early 2000s, have been delayed multiple times.

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