A speedy economic recovery will be difficult to achieve despite the government's economic stimulus measures and the Bank of Japan's easier monetary policy, the central bank said in a report released Thursday.According to the BOJ's monthly report on recent economic and financial developments for October, Japan's economic conditions continue to deteriorate, with production, income and expenditure, coupled with bad corporate finance, all declining.The latest report is based on data and information available at the BOJ's monetary policy meeting Tuesday. "As to final demand, decline in government investment is slowing and exports are rising again due to decreasing imports," the report says. "However, companies' investment in equipment continues to fall and consumers' spending and investment in housing remain stagnant."The report points out that the level of inventories remains high in most industries, the decline in corporate profits is accelerating and the unemployment rate is at a record high, badly affecting consumer confidence.In the BOJ's quarterly "tankan" survey released last month, business sentiment at every level of Japanese industry shows signs of worsening over the past three months.The results underline the need for the government to quickly boost domestic demand with an additional stimulus package and restore confidence in the banking sector through financial reforms.In the latest report, the BOJ said the pace of the economy's decline is expected to slow down in the latter half of fiscal 1998 as the effects of the stimulus package and the central bank's easing of its monetary policy make their full impact.On Sept. 9, the central bank decided to further ease its monetary policy by guiding the unsecured overnight call money rate, a key short-term interest rate, down to around 0.25 percent on average to induce economic recovery through monetary measures.However, the effects of such monetary measures are likely to be limited, since tight lending by financial institutions may continue to worsen corporate finances and prevent fast economic recovery, the report says.Measures to stabilize the financial system, including the financial reform bills adopted in the Diet earlier this week and another bill for injecting public funds into ailing banks, are expected to help ease the credit crunch, the report says.
