The Bank of Japan on Tuesday, February 13, retained its core economic assessment, after cutting its largely symbolic discount rate for the first time in six years in a bid to calm market fears. "The economy continues to recover gradually but the pace is slowing due to decelerating export growth," the central bank said in an unchanged monthly assessment for February.
"Overall, it is likely that the economy will continue a gradual upward trend, led mainly by business fixed investment," the central bank said in a report. "In addition, the favorable financial environment, created partly by the bank's continuation of its easy monetary stance, and the government's new economic stimulus package are expected to underpin the economy."
The effects of a $44.5 billion supplementary budget enacted in November should start to feed through to the economy in the weeks ahead. But attention should be paid to growing risks as overseas economies and markets falter, the Bank of Japan said. "Meanwhile, net exports—real exports minus real imports—are starting to decrease, reflecting a slowdown in overseas economies such as the US and East Asia."
The bank reiterated its assessment that industrial production was on a rising trend, although the pace was "slowing considerably." Producer and consumer prices were likely to remain weak, the report said. But the bank reiterated its argument that deflation in Japan was the product of reforms and not just sluggish demand.
"In addition to the declining trend of machinery prices due to technological innovations, the decrease in prices of consumer goods arising from the streamlining of distribution channels, and the reduction in communications fees aided by deregulation will continue to exert downward pressures on prices."
The central bank came under fire in August for abandoning its "zero rate" monetary policy despite the lingering deflation. On Friday, it sought to counter government hostility by cutting the discount rate for the first time since September 1995, to a record low 0.35 percent from 0.5 percent. The Bank of Japan also unveiled a package of measures designed to shore up the fragile financial system, including a lending facility for emergency use by financial institutions.
But there was no cash crisis for companies, the report said. "However, the effects of the decline in stock prices on the fund-raising conditions of firms need to be carefully monitored." —(AFP)
© Agence France Presse 2000
© 2001 Mena Report (www.menareport.com)
