The Bank of Japan revised its economic assessment upward for a second straight month Tuesday, pointing to improvements in exports and industrial output.
The BOJ Policy Board meanwhile held the key interest target rate at around 0.1 percent.
“Japan’s economic conditions, after deteriorating significantly, have begun to stop worsening,” the BOJ said in a statement issued after a two-day policy meeting.
The central bank said exports and production began turning upward, and public investment increased.
“In the coming months, Japan’s economy is likely to show clearer evidence of leveling out over time,” the BOJ said.
BOJ Gov. Masaaki Shirakawa said at a press conference he expects the economy to recover toward next fiscal year, thanks to the impact of new fiscal and monetary policies as well as better news from overseas, including a recovery in global financial markets.
He suggested the BOJ will consider terminating the unorthodox credit-promotion measures it has taken to stabilize the financial system, such as buying commercial paper and corporate bonds from lenders, by the end of September, when they are due to expire.
“We are planning to make our judgment in an appropriate time by the end of September in a way that market participants can foresee,” he said.
Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management Co., agreed with the BOJ’s assessment, saying inventory adjustments have progressed while exports to China grew.
“It is correct to say that leveling out can currently be seen,” Muto said.
The economy will continue to recover in the latter half of the year, hopefully backed by reviving U.S. private demand, he said.
Hiromichi Shirakawa, chief economist at Credit Suisse, said the economy is likely to improve at least until around fall.
“Assessments will continue to be upgraded for months to come,” he said.
Shirakawa said government stimulus measures, including the cash handout program and public works projects, are also propping up the economy.
However, he said the outlook will be uncertain after around October and whether domestic production continues to expand will depend on the recovery of U.S. consumption and investment in plants and equipment.
Both Shirakawa and Muto said the BOJ should maintain financial easing to support the economy.
Muto also suggested the government should not plan any further stimulus because it would only risk increasing the swelling fiscal deficit.
At its Policy Board meeting in May, the BOJ raised its view of the economy for the first time in almost three years.
“Economic conditions have been deteriorating, but exports and production are beginning to level out against the backdrop of progress in inventory adjustments both at home and abroad,” the BOJ said at the time. Before May, it said the economy had “deteriorated significantly.”
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