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Japan Expects $5-Billion Dip in Trade Gap

From Reuters

Japan expects its trade surplus to shrink slightly next year while its economy grows steadily because of robust domestic demand, government officials said Tuesday.

They said Japan plans to cut its trade surplus to $88 billion in the next fiscal year, from an estimated $93 billion in the year ending March 31.

The government had expected this year’s surplus to be only $81 billion but rising exports and a sharp drop in the price of oil, a major Japanese import, will prevent Tokyo from reaching that goal.

Private economists said some trading partners may be disappointed that the projected cut is so small, particularly the United States, which has been hoping for a dramatic reduction in the massive American trade deficit.

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Japanese officials said the government expects the economy to grow by 4% in 1989-90. Growth this year is expected to be about 5%.

Faster Growth

Domestic demand will be the major factor in spurring growth again next year, they said. Consumers flush with cash from planned income tax cuts and expected wage increases are likely to remain heavy spenders, fueling the expansion.

Japanese corporations will also continue to spend heavily on plant and equipment, although such growth is likely to taper off from this year’s frenetic pace, economists said.

The government originally expected the economy to grow by 3.8% this year, but the steady world economy and heavy corporate spending means growth will be faster than that.

The government also expects its current account surplus, which is made up of trade in goods and services, to narrow to $71 billion next fiscal year, from $78 billion in 1988-89, the officials said.

Inflation will remain modest, despite continuing economic expansion. Consumer prices are forecast to rise about 2% in 1989-90, after increasing 0.7% this year.

A 3% sales tax due to take effect from April 1 is expected to push up prices, economists said.

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