The Bank of Japan on Monday downgraded seven of the nation’s nine regional economies, saying weaker exports stemming from slowing global growth were affecting production in many areas.
Before the release of the central bank’s quarterly regional economic report, however, BOJ Gov. Masaaki Shirakawa told his regional managers that the eurozone debt crisis is the “largest risk factor” to the nation’s economy.
In the so-called Sakura Report, the BOJ cut its assessments of the economies in Hokkaido and the Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku and Kyushu-Okinawa regions.
The only regions it left intact were the Tohoku region, which is being supported by reconstruction demand from the devastating March 11 earthquake and tsunami, and the Shikoku region.
“Compared with the last assessment in October 2011, seven regions reported that the pickup in their economic activities had paused recently, mainly due to the effects of a slowdown in overseas economies,” the report said.
With sluggish economic conditions overseas leading to weaker exports, the report also said most regions reported that production had recently been “relatively weak or was more or less unchanged, or that the pace of increase was moderating.”
But a BOJ official said the branch managers did not take the view that economic conditions are “heading downward” and said many think domestic demand, such as individual consumption, appears to have been relatively firm.
The central bank meets with the managers of its 32 branch offices every three months to gauge the state of nation’s regional economies so it can better steer monetary policy.
At the outset of the meeting, Shirakawa said Japan’s recovery has “paused” amid the negative impact from the rising yen and slower world economic growth. He also said that economic activity would “remain more or less flat for the time being.”
A strong yen concerns Japanese exporters, one of the main engines driving the economy, because it erodes the value of their earnings when repatriated.
In the BOJ’s previous report in October, the central bank upgraded its economic assessments of five of the nine regional economies as the nation continued to recover from the March 11 disasters.