Japan recovery paused, warns BoJ

December 21, 2011
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, TOKYO, Dec 21 – The Bank of Japan said Wednesday the country’s economic recovery “has paused” because of the slowing global economy and strong yen, as data revealed a growing trade deficit for the export-dependent nation.

The central bank left its key interest rate unchanged at between zero and 0.1 percent, but despite the crunch, did not offer any more easing.

“The pick-up in Japan’s economic activity has paused, mainly due to the effects of a slowdown in overseas economies and of the appreciation of the yen,” the central bank said after a two-day policy meeting.

“Improvement in business sentiment has slowed on the whole despite steady improvement in domestic demand-oriented sectors,” the bank said in a statement.

It warned the European financial crisis was posing a serious risk to the global outlook.

“The sovereign debt problem in Europe could result in weaker growth not only in the European economy but also in the global economy, particularly through its effects on global financial markets,” it said.

Underlining the difficulties facing Japan’s vital export sector, figures Wednesday showed a trade deficit for a second straight month in November, with shipments to the crucial European market hit as the region struggles with its debt crisis.

Flooding in Thailand and a stronger yen also weighed on Asia’s second-largest economy, which is still struggling to get over the effects of the March 11 quake and tsunami disaster, a government official said.

Exports fell 4.5 percent in the month from a year earlier, increasing the trade deficit to 684.73 billion yen ($8.79 billion), the largest trade loss ever for the month of November, the finance ministry said.

Japan’s trade surplus with Europe fell to 27.59 billion yen, with exports down 4.6 percent, the lowest figure for the month since records began in 1979, a finance ministry official said.

The smallest trade surplus ever recorded with Europe was 26.8 billion yen posted in January 2009, he added.

Total exports stood at 5.20 trillion yen in November, down for the second straight month.

Electronics, notably computer chips and video equipment were particularly hard hit, the finance ministry said.

An increased need for fossil fuels in resource-poor Japan caused by the shuttering of nuclear power plants amid public fears over the safety of the technology also added to the import tally.

Imports rose 11.4 percent to 5.88 trillion yen in the month, as a result of higher fuel costs, the finance ministry said.

In October, the balance of Japan’s trade in goods stood at a revised 280.17 billion yen in the red.

“At the bottom line is the economic slowdown, especially in Europe… in addition to a high yen,” said Taro Saito, senior economist at NLI Research Institute.

“Flooding in Thailand came on top of that,” he said.

“I think the European economy is already in a state of recession, and it will continue to face a very tough time into next year.”

Many analysts expect the BoJ to take further easing steps — such as expanding its asset-buying facility — over coming months to help ease the pain from the world slowdown.

“As for the outlook, Japan’s economic activity will remain more or less flat for the time being,” the bank said Wednesday.

“After that, the economy is expected to return to a moderate recovery path as the pace of recovery in overseas economies picks up, led by emerging and commodity-exporting economies, and (as) reconstruction-related demand after the earthquake disaster gradually materialises.”

In a move that will likely make few waves in financial circles, Japanese credit rating company Rating and Investment Information Inc. lowered the country’s sovereign debt rating to AA+, the first time a domestic firm has said the country’s debt is not of triple-A calibre.

Citing a debt to GDP ratio of around 2:1, a figure it said was likely to rise, it said: “the path towards the stabilisation of outstanding government debt… is still unclear.”

In October, the BoJ said it would boost its asset buying fund to 55 trillion yen ($707 billion) from 50 trillion yen to help pour more liquidity into the market, with the extra amount earmarked for the purchase of Japanese government bonds.

— Dow Jones Newswires contributed to this report —

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