The Bank of Japan on Monday downgraded its core assessment in its December economic appraisal because of flagging export growth but analysts said an interest-rate cut was unlikely.
"Japan's economy continues to recover gradually, albeit at a somewhat slower pace due to decelerating export growth," the monthly report said.
In the November report, the central bank had said that "Japan's economy is recovering gradually, with corporate profits and private-sector capital expenditure continuing to increase."
East Asian demand for Japanese goods was slowing as stocks of raw materials and electronic parts rose, the latest report said.
"While the US economy is decelerating gradually, the expansion in overseas economies is projected to continue, albeit at a slower pace," it said.
"In these circumstances, exports are likely to remain level for the time being mainly due to inventory adjustments in East Asian economies.
"Meanwhile, imports are projected to continue increasing, particularly for those of consumer goods, and capital goods and parts. Therefore, net exports will decline slightly for a while."
Flagging export growth contributed to a 28.6-percent fall in Japan's current account surplus in October, according to figures released last week.
The monthly report said the poorer trade performance was reflected in the Bank of Japan's Tankan survey of corporate sentiment released last Wednesday, which suggested a two-year recovery in large business confidence is over.
The bank also warned of renewed deflationary pressures, adding that "prices are expected to be somewhat weak for the time being," citing steady falls of prices of semiconductor chips and a belated downturn in crude oil prices.
But SG Securities economist Shuji Shirota said the Bank of Japan was unlikely to return to its "zero-rate" monetary policy, which it abandoned in August after 18 months despite fierce government pressure to retain it.
A return to the unorthodox policy now "would undermine the BoJs credibility," Shirota said.
"The best the bank can do is probably to keep the status quo for the next 12 months," he said.
The Bank of Japan had kept rates unchanged at a board meeting on Friday, noted HSBC Securities economist Peter Morgan, and "it does not regard this change in perception as sufficient grounds for easing policy."
"In particular, it still expects industrial production to continue rising, although at a slower pace than before, and it remains positive about the prospects for corporate capital spending," Morgan said.
However, monetary easing further down the road "would be a desirable development given the uncertainties of the outlook" -- TOKYO (AFP)
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