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The economy will stop shrinking but is not expected to grow much during fiscal 2002, the Bank of Japan said Tuesday, with its Policy Board members’ gross domestic product forecasts ranging from a contraction of 0.5 percent to growth of 0.2 percent.

Given the continued weaknesses in the economy, the BOJ Policy Board voted unanimously the same day to keep in place its ultra-easy monetary policy, despite signs that the economy could soon bottom out.

The economy will stop deteriorating in the bottom half of the fiscal year, according to the Policy Board’s semiannual Outlook and Risk Assessment of the Economy and Prices report, adopted at the board’s meeting.

The economy, however, will probably not gain much momentum toward a self-sustaining recovery, the report adds.

Companies, especially manufacturers, will see rising profits due to increased exports and inventory adjustments, according to the report. But it will take “a significant period” before these profits help nonmanufacturers, smaller companies and households, the BOJ said.

“Persistent pressure on employment and wages will remain,” the report says, as manufacturers, still saddled with heavy debts, will be forced to cut workers and costs amid rising global competition.

Further, the speed of recovery is heavily dependent on the strength of overseas economies, the progress of banks’ disposal of bad loans and the progress of structural reforms, the report cautions.

“The U.S. economy has been supported by firmer-than-expected private consumption, but its sustainability is uncertain given the low personal savings rate, high level of household debt and existing pressure to adjust capital stock in the corporate sector.”

In the banking sector, “further delays in bad-loan disposals, or the emergence of a significant amount of new bad loans, will damage public confidence in the nation’s financial system,” the BOJ warned.

The end of a blanket guarantee on bank deposits at the end of March could see depositors taking their funds out of certain financial institutions, the BOJ said.

Policy Board members admitted that prices will probably continue to fall, despite the BOJ circulating an abundance of cash through the financial system. All members forecast that the consumer price index, a key measure of price levels, will fall in fiscal 2002. Their predictions ranged from a decline of between 1.1 percent and 0.5 percent.

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