Japan's government projections show the economy is likely to grow 1.5% in price-adjusted real terms in the fiscal year starting in April 2019. It is expected to expand 2.8% in nominal terms.

The Cabinet Office also forecast overall consumer prices would rise 1.5% in fiscal 2019. Stripping out a boost from the planned sales tax hike, the government sees overall consumer price growth around 1.0%, a Cabinet Office official said.

The Bank of Japan is likely to cut its price growth forecasts at a policy meeting later this month as long-term inflation expectations stall, sources said, highlighting the central bank's difficulty in hitting its elusive 2% price target.

Japan's core consumer prices in May rose 0.7% from a year earlier, unchanged from the previous month and well below the BOJ's target.

For the current fiscal year that started in April, the Cabinet Office kept its overall consumer price growth forecast at 1.1%, unchanged from its estimate at the start of this year.

The jobless rate is expected to fall to a 26-year low of 2.4% in fiscal 2019, reflecting the tight labour market.

The Cabinet Office cut growth projections for fiscal 2018 to 1.5% in real terms from 1.8% seen earlier, and to 1.7% in nominal terms from an earlier forecast of 2.5%, due partly to a slowdown in property investment.

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