The central banks of Japan and Australia yesterday reported signs of improvement in their economies, but investors fretted that a global recovery was some way off after weak data from Europe and the US.
The Bank of Japan held its interest rate at 0.1 percent and upgraded its economic assessment for the second straight month, as rising output and exports raise expectations the worst is over in Japan’s deepest recession since World War II.
Bank of Japan (BOJ) Governor Masaaki Shirakawa said at a news conference in Tokyo that the economy’s improvements were because of temporary factors such as economic stimulus measures and there was no guarantee that a recovery would be sustainable.
“Although there has been some optimism on the economy after strong industrial output data, the BOJ is still maintaining a very pessimistic view on the economy,” said Junko Niskioka, chief economist at RBS Securities in Tokyo.
“It said the economy has begun to stop worsening, but it didn’t say it has stopped worsening,” Niskioka said.
Nonetheless, minutes from the Australian central bank’s policy meeting this month showed the bank saw hopeful signs, noting in particular a strong recovery in Chinese industrial production and improvements in other East Asian economies, including Japan.
“While some uncertainty about the durability of China’s economic recovery inevitably remained, there were reasonable grounds to expect that the Chinese economy would continue to record solid growth outcomes,” the Reserve Bank of Australia concluded.
The worst economic slump in six decades was triggered by bank failures and market turmoil that followed big losses on risky home loans when a US housing boom turned sour in 2007.
The recession has forced central banks to intervene in credit markets and there is now debate about when policymakers should retreat and cut stimulus spending.
A surge in long-term government bond yields over the past several weeks showed that financial markets fear huge sums of money poured into economies through drastic stimulus packages will ultimately fuel inflation and cripple state finances.
Asian stock markets fell, with Japan’s Nikkei down 2.9 percent for its worst one-day percentage loss in more than two months and a broad measure of shares elsewhere in Asia losing 1.8 percent, as investors worried a strong rally from March lows had run ahead of corporate prospects.
“I don’t see a lot of evidence of a really solid economic recovery. All I see is a moderation in the rate of decay,” said Frank Villante, chief investment officer at Souls Funds Management in Australia.
US stocks suffered their worst slide in a month on Monday after a report on New York state’s factory sector showed manufacturing slowing again this month after some improvement in recent months.
The euro hit its lowest level in almost a month against the dollar yesterday after the European Central Bank said euro zone lenders would probably need to write down another US$283 billion.
Adding to the gloom, data showed the 16-nation bloc shed a record 1.22 million jobs in the first quarter.
G8 finance ministers agreed over the weekend that the global economy was showing encouraging signs of stabilization and started to consider how to unwind rescue steps.
But while IMF director Dominique Strauss-Kahn said that he largely agreed with the G8 ministers’ position, he also appealed for caution in assessing the state of the global economy.