A decrease in exports is causing economic recovery to stall for the first time in eight months, the Bank of Japan said Wednesday in a monthly report that downgraded its assessment of the nation’s economy.
The central bank was also more cautious about downward pressure on consumer and wholesale prices.
The assessment is identical to one issued Friday by the government that said, “The economic recovery appears to be pausing.”
“The economy will likely remain stagnant for some time,” BOJ Gov. Masaru Hayami said during an appearance before the House of Councilors Budget Committee the same day. “To make the nation’s economy a surety, financial and industrial structural reforms are absolutely necessary.”
The central bank’s latest monthly report of recent economic and financial developments points to falling industrial production, excessive inventories in some areas, a slowdown in corporate profits and sluggish household consumption.
“Recovery in Japan’s economy has recently come to a pause, reflecting a decrease in exports,” the report says.
The wording marks a downward revision from the bank’s view last month that the economy “continues to recover gradually, but the pace is slowing.”
In addition, the report marks an end to the central bank’s view that the economy is in a phase of “gradual recovery,” which it first stated in July, a month before it decided to scrap its 18-month “zero-interest-rate” policy.
On Monday, the BOJ decided to effectively revive the policy by raising the target balance for commercial bank reserves to 5 trillion yen from 4 trillion yen. These are the funds banks use to take short-term loans from one another, and now that their “supply” will swell, the ensuing fall in demand for these loans will move the corresponding interest rate, the overnight call rate, close to zero.
The report also puts part of the blame for Japan’s woes on other wounded economies. “While domestic demand remains steady, a sharp slowdown in overseas economies such as in the United States and East Asia is causing net exports to plummet,” the report says. “Industrial production is starting to decline, and inventories of some materials and electronics parts are becoming excessive.
“Corporate profit continues to improve but the pace at which it is doing so is thought to be slowing significantly, particularly in the manufacturing industries, as exports and production are recently weakening.”
The report revises downward its projection on capital expenditures and individual consumption.
“Corporate fixed investment is likely to peak out gradually, although there will be a backlog of orders to be implemented for a while. . . . Industrial production is expected to follow a declining trend,” the report says, revising downward February’s wording that “industrial production remains on a rising trend, but the pace is slowing considerably.”
“Subdued” corporate prices means “sluggish” household income and consumption, the report says.
Concerning prices, it says, “Given the high uncertainties regarding future economic developments, possibilities that weak demand will intensify downward pressures on prices warrant careful monitoring.”
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