BoJ upgrades economic view

June 16, 2009

, TOKYO, June 16 – Japan\’s central bank on Tuesday left its key interest rate unchanged at 0.1 percent, while upgrading its assessment of the world\’s number two economy for a second month in a row.

"Japan\’s economic conditions, after deteriorating significantly, have begun to stop worsening," the Bank of Japan said in a statement. "Japan\’s economy is likely to show clearer evidence of levelling out over time."

Last month, the central bank upgraded its assessment for the first time in almost three years, saying: "Economic conditions have been deteriorating, but exports and production are beginning to level out."

That assessment was brighter than its April view that economic conditions had "deteriorated significantly."

Recent economic data has shown a mixed picture for the Japanese economy, which has been hit hard by the global downturn but which, according to many analysts, looks like it may stabilise in the current quarter.

Asked whether the economy had hit bottom, central bank governor Masaaki Shirakawa told a news conference later: "The Bank of Japan is cautiously looking to a possible recovery in … demand."

The central bank, which made the rate decision by a unanimous vote, said in its statement it would continue "paying attention for the time being to the downside risks to economic activity and prices."

On Monday, Japan\’s industry ministry also improved its assessment of the business climate for the first time in more than three years, saying: "The economy is showing a few signs of recovery in some (geographic) parts."

The government said last Thursday that the economy shrank less than initially thought in the first quarter of 2009, but still logged its sharpest contraction on record, shrinking an annualised 14.2 percent.

The economy, which has been in recession since the second quarter of 2008, shrank by a revised 3.8 percent in the three months to March, compared with its earlier estimate of 4.0 percent.

"Japan is most likely to return to positive growth for the April-June quarter as a slump in external demand is easing," said Toru Shimano, an analyst at Okasan Securities.

"But this does not mean Japan\’s full fledged recovery is in sight," Shimano said. "It is still very much unlikely for the Japanese economy to return to pre-crisis levels by the end of this year."

Factory output in April rose a revised 5.9 percent, the fastest monthly jump in more than half a century, while Japan reported a third straight monthly trade surplus in April, following a record deficit in January.

But wholesale prices dived 5.4 percent in May from a year earlier, the biggest drop in more than 22 years, signalling deflation may again haunt Japan\’s economy, as it did in the 1990s.

Unemployment rose to 5.0 percent in April, the highest level since November 2003, after the country\’s auto and high-tech giants announced massive job cuts in recent months as they sank deep into the red.

Shirakawa added that the central bank was yet to decide when to lift emergency measures that are in place to buoy the troubled financial system, such as the purchase of commercial papers.

"We will make decisions after patiently scrutinising the condition of the financial market," he told reporters.

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