BOJ raises economic assessment again as recession eases

TOKYO, June 16 Kyodo -
The Bank of Japan on Tuesday upgraded its assessment of the Japanese economy
for the second straight month, confirming that the nation's deepest postwar
recession is easing.
The BOJ's eight-member Policy Board also voted unanimously to leave the key
interest rate unchanged at 0.1 percent at a two-day policy meeting. The central
bank last cut its target rate for unsecured overnight call money in December,
lowering the rate from 0.3 percent.
''Japan's economic conditions, after deteriorating significantly, have begun to
stop worsening,'' the BOJ said in a statement, referring to pickups in exports
and production, and an increase in public investment.
BOJ Governor Masaaki Shirakawa said at a press conference the improvement has
been largely driven by progress in inventory adjustment by companies, eased
extreme pessimism, and effects of ''aggressive'' fiscal and financial measures
implemented at home and abroad.
But how the economy will perform once those positive effects run their course
will largely depend on private demand, and the BOJ is wary about the outlook,
he added.
''We're taking a cautious view on what final demand will be once inventory
adjustments are completed at home and abroad,'' he said.
There are still downside risks to the economy and prices, he added.
In the BOJ's previous assessment issued after its Policy Board meeting on May
21-22, the central bank had said, ''Economic conditions have been
deteriorating.''
The assessment marked the BOJ's first upgrading of its economic assessment in
almost three years as it dropped the word ''substantially'' in describing the
pace of deterioration, citing emerging signs of economic improvement.
Since then, more upbeat economic indicators have emerged, such as the
second-highest increase of 5.9 percent in April industrial output data,
prompting the BOJ to raise the assessment again.
''Japan's economy is likely to show clearer evidence of leveling out over
time,'' the BOJ said.
The Japanese economy contracted an annualized real 14.2% in the January to
March quarter, marking the worst slump since comparable data became available
in 1955.
But many economists expect Japan's economy to show its first growth in five
quarters in the current April to June quarter, with those surveyed by the
Economic Planning Association, a government-affiliated research institute,
projecting an annualized 1.6 percent growth on the average.
As for the timing of ending temporary measures the BOJ has taken to shore up
the recession-mired economy, Shirakawa said it will largely depend on
developments in financial markets and the situations of corporate financing,
and that the central bank will make a decision about the exit from such steps
as the outright purchase of corporate debts by the end of September.
''Central banks are wholly conscious of the risk that, if they keep
extraordinary steps for an unnecessarily long period, it will cause distortion
to financial markets and exacerbate fluctuations in the economy as well as
prices,'' Shirakawa said.
Since last fall, the BOJ has implemented a series of unconventional measures to
boost liquidity and support corporate financing amid the global financial
crisis.
The BOJ held off on any new policy initiatives at its latest Policy Board meeting.
==Kyodo