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The Bank of Japan downgraded its monthly assessment of the economy and projected a future squeeze on industrial output, according to a monthly report released Monday.

The assessment for worsened economic conditions was made during the central bank’s policy meeting last week when the BOJ decided against further easing. The speed at which economic conditions deteriorate and the pace of structural reform are seen as key determinants to when the BOJ will make its next move.

A fall in exports in overseas economies is being compounded by sluggish demand for information technology-related goods, the report says. This is causing “substantial” declines in production, and “adjustments in economic activities are gradually intensifying.”

In its previous report, the central bank said “adjustments in economic activities have been under way.”

The BOJ has been emphasizing the importance of structural reform over further easing in the face of renewed pressure from politicians and the Finance Ministry that the BOJ increase the surplus supply of banks’ reserves at the central bank.

Due to the central bank’s ultra-easy policy in place since March, the overnight interest rate between banks was moving at around 0.01 percent.

Credit demand in the private sector continues to lack momentum, and weak demand is amplified as companies continue to reduce their debts, the BOJ said, implying that further easing will not raise the amount of money in the economy.

The environment surrounding corporate profits is becoming more severe, due to substantial declines in exports and production, the report says. As hours worked are cut, the household sector is beginning to feel the crunch.

Capital expenditures are beginning to fall, while the other force driving the economy forward — public spending — continues to increase, the report says, but public spending, too, is expected to start declining in the near future.

Nakahara joins BOJ

Shin Nakahara, former vice president of Bank of Tokyo-Mitsubishi, has been appointed a member of the Bank of Japan Policy Board, the government announced Monday.

Nakahara is replacing Susumu Taketomi, whose term expired Sunday.

The BOJ’s policymaking body has nine members, including Gov. Masaru Hayami and two deputy governors.

Nakahara, 63, who graduated from the University of Tokyo, joined the then-Bank of Tokyo in 1961 and was responsible for the foreign-exchange section. He became a BTM vice president last June, following the merger of Bank of Tokyo with Mitsubishi Bank.

He also dealt with the disposal of bad loans as a senior member of the Japanese Bankers Association.

Guidelines Thursday

A key government economic panel headed by Prime Minister Junichiro Koizumi will finalize on Thursday its guidelines regarding the nation’s fiscal and economic policy, Chief Cabinet Secretary Yasuo Fukuda said Monday.

“The goal is to finalize it June 21,” Fukuda said at a news conference.

The Council on Economic and Fiscal Policy unveiled the guideline draft last week.

According to the draft, the nation will have to endure low economic growth for a short period until it completes a program of economic structural reforms, including the disposal of bad loans held by banks.

Once finalized by the panel, the guidelines are expected to be endorsed at a Cabinet meeting.

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