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Sat, Mar 23, 2002 - Page 21 News List

BOJ changes its outlook on Japan


Japan's central bank raised its assessment of the economy for the first time in 20 months, suggesting policy may not be eased further as board members say a global rebound has helped slow a yearlong decline in exports and factory production.

"Exports, which have a relatively large impact on production, have recently stopped declining," the Bank of Japan said in its monthly report. The bank left its economic assessment unchanged the past two months after lowering it on 10 occasions last year.

"I can't rule out the possibility that Japan will hit bottom sooner than expected," said Yasunori Kuroda, who helps manage funds at Yasuda Kasai Global Asset Management Co. Bonds, little changed yesterday, may fall in coming weeks, he said.

Still, bank Governor Masaru Hayami and his eight policy-setting colleagues said a full recovery is still a way off, because business and consumer spending is weak, unemployment rising and wages falling.

The economy is in a "fragile state [and] it may take quite a while the economy as a whole to stop declining," the report said.

The bank's improved outlook, which echoes the government's most recent assessment of the economy, may not reassure investors, who are concerned authorities may use an export-led economic recovery to put off promised reforms such as forcing banks to shut off companies that can't repay loans, that threaten to push tens of thousands of people out of work.

The benchmark Nikkei 225 stock average fell 1.6 percent, ending its second losing week in a row. The losses snapped a month-long, 26 percent rally sparked by tighter government restrictions on trades that seek to profit when share prices decline, a practice known as short-selling, and pledges of more steps to reverse a 2 1/2-year slide in deflation.

The dollar rounded out its best week against the yen in almost a year on signs the US economy is emerging from recession sooner than Japan.

The central bank, which lowered interest rates to close to zero a year ago and has since poured trillions of yen into money market to try to reverse a five-year slide in bank lending, followed by raising the amount of bonds it buys each month from investors by a quarter, to ?1 trillion (US$7.5 billion) last month. The bank left policy unchanged at a two-day meeting that finished Wednesday.

"The BOJ has taken drastic steps and those measures have had an impact on financial markets," said Tomoko Fujii, a senior economist at Nikko Salomon Smith Barney Ltd. "The government must do something next."

The nation's top economic ministers doused expectations of more action on top of the steps announced last month to speed the disposal of bad loans and make it easier for small and medium-sized companies to borrow.

While admitting those steps were incomplete, Economy and Fiscal Minister Heizo Takenaka said: "There's no plan to come up with something by the end of this month."

Finance Minister Masajuro Shiokawa said it may take some time to reverse the 2 1/2 year slide in prices. "There are no remedies with which we can immediately stamp out deflation," he told reporters after Cabinet met.

Japan is relying on a pick up in exports to pull the economy out of recession as demand at home sags.

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