The economy will probably not make an immediate transition to a self-sustained recovery, even if the government’s 16 trillion yen stimulus package is implemented, the Bank of Japan reckoned in a report Thursday.
According to the BOJ’s monthly report on recent economic and financial developments for August, the country’s economic condition is continuing to deteriorate, with production, income and expenditures all declining.
The central bank has been cautious about gauging the impact of the government’s stimulus package since its report in July, when it gave its first-ever official assessment of a stimulus plan. The package, announced earlier this year, features public works projects and one-time tax cuts for this year.
This month’s report cites continuing concern over the economy, based on the data and information presented at BOJ’s monetary policy meeting Aug. 11.
The fall in public works spending is slowing and exports are rising, the report says. But plant and equipment investment continues to fall, and consumer spending and housing investment remain stagnant.
In addition, the report says inventories remain high and the decline in corporate profits is accelerating. The fall in wages compared with the previous year is a reflection of further deterioration in employment and income conditions. “Although the deterioration in the economy is expected to halt as the effects of the stimulus package spread, the positive influence of the stimulus package on private-sector demand will likely be limited,” the bank said in the report.
The report says the declining trend in wholesale and consumer prices will continue, and notes the slowdown in the growth of money supply is a sign of further decline in loan demand from private-sector firms, which have reduced activity. “Some firms, especially small and medium-size firms, have been facing difficult financing conditions in terms of fund availability and interest rates,” the BOJ said. “This influence on the overall economy should be carefully examined.”
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