The Bank of Japan is sticking to a slightly upbeat assessment of the economy, reiterating in a report released Tuesday that economic conditions appear to have stopped deteriorating at present.
In its April report on economic and financial development, the central bank noted several positive developments, including a recovery in housing investment and a considerable increase in public works orders.
In its previous report, released in mid-March, the BOJ shifted its assessment of the economy slightly upward for the first time in several months. "The deterioration in corporate and consumer sentiment seems to have ceased," the April report says, attributing the trend to dissipated public anxiety over the health of Japan's financial system.
"However, corporate profits remain weak, and employment and household income conditions continue to deteriorate," the report says. "In corporate finance, firms' concerns about the availability of funds in the future is gradually abating, but has not completely disappeared."
The report says the government's pump-priming measures and the BOJ's current ultra-easy monetary policy will support the economy, adding that a recent rebound in stock prices will also have a positive effect.
The BOJ warns, however, that firms' restructuring efforts, although destined to eventually improve productivity, may hurt the economy in the short run by reducing capital investment and worsening employment and income conditions, which could in turn discourage household expenditures. "Under such circumstances, it is still difficult to expect an immediate, self-sustained recovery in private demand," the report says. "Overall economic developments require careful monitoring."
As to the credit crunch, the central bank noted that severity in borrower firms' fundraising conditions has been alleviated. "It seems banks have started to extend loans more actively than before, especially for projects involving relatively small credit risks," the report says.