Japan's central bank downgraded its assessment of the economy in a monthly report released yesterday, citing deep worries about falling exports, income and consumer spending.
"Adjustments in economic activity are becoming more severe," the Bank of Japan said. Last month, it said economic adjustments were exerting a "negative influence" on jobs and income.
The downgrade marked the sixth time in as many months the bank has cut its view. The Bank of Japan said slipping production has helped push employment and income down, hurting private consumption. Japan has been fighting an economic slowdown for more than 10 years.
The global downturn, particularly that in the US aggravated by the Sept. 11 terrorist attacks, is making the nation's prospects for a quick recovery hopeless.
Corporate profits have fallen. The unemployment rate hit 5.3 percent in September, the highest since the government began keeping track in the 1950s. Exports, once the trusted engine for Japan's growth, have lagged.
Last week, the Bank of Japan decided to keep monetary policy unchanged. There is little the bank can do, as it has already cut short-term interest rates down to 0 percent. The government recently acknowledged the economy would shrink 0.9 percent in the fiscal year ending next March, instead of growing 1.7 percent as initially forecast.
Prime Minister Junichiro Koizumi is promising to carry out reforms such as cleaning up the massive bad debts at the country's banks, reining in public spending and turning over money-losing public businesses to the private sector.
Koizumi says economic growth will initially suffer because it will take time for the nation to find ways to achieve stable growth.
A ?2.9 trillion (US$24 billion) extra budget for this fiscal year cleared Parliament last week to help create a safety net as restructuring companies shed workers to survive amid protracted economic decline.
The budget, drafted in line with Koizumi's plan to limit deficit spending, allows him to keep his promise to cap new bond issuance at ?30 trillion (US$244 billion) during the current fiscal year. But calls have been on the rise among some politicians for another extra budget.
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