The economy remains in the doldrums, plagued by weak domestic demand and facing strong downward pressure, the Bank of Japan said April 13 in a monthly economic report gloomier than last month's.
Growth in net exports, which has so far been a positive element in sustaining the economy, has slowed and is unlikely to remain strong enough to prevent the economy from worsening, the report adds.
The central bank also hinted at deflationary risks, as wholesale prices are continuing to fall because of sluggish demand here and abroad. Prices are likely to "soften" in the future and may have a negative impact on corporate activities, the BOJ report says.
The report reflects the results of the BOJ's quarterly "tankan" survey released April 2, which showed a sharp drop in business confidence across industries. Business fixed investment shows signs of declining, consumer spending remains sluggish despite special tax cuts worth 2 trillion yen, housing investment is weak and public investment is decreasing, the monthly report says.
Since inventories have accumulated due to weak demand, industrial production has continued to drop. The report points to a vicious cycle in which corporate profits worsen rapidly, hurting employment and worker income, which in turn aggravates domestic demand.
The BOJ expects net exports to be dragged down by economic trouble in other Asian countries, and business fixed investment to decline further. Although consumer confidence may stop shrinking, no clear recovery in consumption can be expected, the report says.