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updated 12/19/2003 1:49:21 PM ET 2003-12-19T18:49:21

The Japanese government on Friday predicted that economic growth in fiscal 2004 would slow slightly in real terms but increase in nominal terms due to a slower pace of deflation. 

The cabinet office said real growth would slow to 1.8 percent in the year to March 2005 against a projected 2 per cent in this fiscal year. Government projections have tended to be on the conservative side in recent years. 

However, in nominal terms, growth is expected to rise to 0.5 percent next year from a forecast 0.1 percent this year. Many economists have come to regard the nominal figure as the more important one. 

The economy has been shrinking in nominal terms since the mid-1990s, but has shown real growth in the past several years because of the effect of deflation. The government estimated the gross domestic product deflator would fall to minus 1.3 percent next year, compared with minus 1.9 per cent this year. Consumer prices would fall by 0.2 percent, it said.

However, Heizo Takenaka, economy and financial services minister, on Friday urged the central bank to take stronger measures to boost money supply, growth of which has slowed to about 1.5 percent in recent months. In the past three monetary policy meetings, the bank had voted to leave its target for liquidity unchanged. 

Mr. Takenaka said: "To overcome deflation we must maintain real economic growth of about 2 percent and boost the money supply. The government and the Bank of Japan must work together." 

In other projections, the government forecast average unemployment of 5.1 percent next year against a projected 5.2 percent for this year. It had peaked at 5.5 percent in January. 

The forecasts assume an exchange rate of Y109.2 to the dollar, which suggests the government is prepared to continue the currency intervention, which cost Tokyo a record Y18,000 billion this year, to prevent a sharp appreciation of the yen.

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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