The Bank of Japan downgraded its assessment of the Japanese economy on Monday, April 16, saying industrial production had started to decline more rapidly and that business sentiment was worsening. The economic adjustment phase in the Japanese economy was expected to continue for some time, the central bank said in its April report on the economy.
"While domestic demand remains steady, net exports are falling rapidly, reflecting a sharp slowdown in overseas economies such as in the US and East Asia," the report said. "Mainly due to these developments, industrial production is declining more sharply and excessive inventories of electronic parts and some materials are building up."
The central bank added that the pace of growth in corporate profits appeared to be slowing significantly and business sentiment was worsening, particularly in manufacturing. Financial markets did not react to the news, saying that the bleaker economic picture was no surprise. Mizuho Investor's Securities broker Masayoshi Sato said that "the market had already factored in the worsening fundamentals." "The BoJ report had no impact on the stock market," he added.
The Tokyo Stock Exchange's Nikkei average fell 130.83 points or 1.0 percent on profit-taking to close at 13,254.89. Mitsubishi Trust and Banking dealer Yasuharu Tsuru said foreign currencies barely moved following the report. "The government had already downgraded its economic assessment for the third consecutive month last Friday," Tsuru said.
At 3.02 pm (0602 GMT), the yen was trading at 124.68 to the dollar, down from 124.11-16 in New York and 124.23-26 in Tokyo late Friday. Looking ahead, the Bank of Japan said public investment was expected to continue rising for the time being, although net exports would probably continue to decline. Industrial production was expected to continue to decline and profit growth was seen as sudued, along with household income and consumption.
Overseas economies were seen gradually recovering from their slowdown from the second half of the year, although a prolonged slowdown was possible. Prices would probably remain weak for the time being, despite the effect of the weakening yen lifting the cost of imports. With continuing adjustments in the economy, the balance between supply and demand in the domestic market was likely to put downward pressure on prices.
"Moreover, given the high degree of uncertainty regarding future economic developments, the possibility that weak demand will intensify downward pressures on prices warrants careful monitoring," the BoJ said.
In March the BoJ said the recovery in Japan's economy had come to a pause, reflecting a decrease in exports. This was a more pessimistic view than its February assessment that the economy was recovering gradually. In the face of the worsening conditions, the central bank announced an effective return to zero interest rates through an increase in the money supply and the adoption of an inflation target. —(AFP)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)