BOJ downgrades assessments for 3 out of 9 regional economies+

TOKYO, Oct. 15 Kyodo -
The Bank of Japan on Friday lowered its assessments for three of the nation's
nine regional economies due to the waning effects of government incentives and
the slowing of overseas economies, while citing the yen's appreciation as a
source of future concern for some regions.
Signaling the uncertain economic outlook, Bank of Japan Governor Masaaki
Shirakawa told a meeting of the central bank's branch managers that a
full-fledged recovery of the Japanese economy will likely be delayed amid the
yen's rise and other adverse factors.
It is the first time since April last year -- when the economy was taking a
beating from the global financial crisis -- that regional economic assessments
have been downgraded in the quarterly ''Sakura Report,'' according to a BOJ
official.
In the report issued after the branch managers' meeting, the central bank
downgraded its assessments for the Kanto-Koshinetsu, Tokai and Chugoku regions,
which have reported that ''the pace of recovery or pickup had recently slowed''
from three months earlier.
With the three regions largely reliant on auto industries, including Tokai,
where Toyota Motor Corp. is headquartered, the official said that the impact of
the termination of a government subsidy program for the purchase of
environmentally friendly cars in early September was a key factor in the
lowering the assessments.
The assessments for the remaining regions, namely Hokkaido, Tohoku, Hokuriku,
Kinki, Shikoku and Kyushu-Okinawa, were left unchanged.
On the whole, the BOJ said that all nine regions judged that their economies
had either recovered at a moderate pace or picked up, but the official noted
that ''a brake has been put on '' moves toward improvement.
At the outset of the branch managers' meeting, Shirakawa said that attention
should be paid to the downside risks to the Japanese economy amid uncertainty
about the U.S. economic outlook, adding, ''It has become more likely that the
return of Japan's economy to a sustainable growth path with price stability
will be delayed.''
As for specific regions, Tokai, which includes Aichi Prefecture, said ''the
pace of improvement (in its economy) seems to have slowed sharply recently.''
In a sign that that the significant decline in passenger car sales has affected
consumer sentiment, the region also said private consumption ''seems to be
weakening as a whole.''
Junichi Maeda, head of the Nagoya branch in Aichi Prefecture, told a press
conference later in the day that its economy is likely to be ''at a
standstill'' for a while because of decreasing car production.
''The focus will be on how long the backlash from the termination of the
eco-car subsidy program will continue, and when car sales in the United States
fully recover, although this issue is affected by the yen's rise,'' he said.
He predicted that the decline in car sales following the end of the subsidy
program will continue until December but is unlikely to last for more than six
months.
Meanwhile, the report said some regions referred to ''heightened uncertainty''
regarding the economic outlook, with the Kinki region among others saying it is
paying attention to the yen's rise and the Asian economy.
Public investment was either starting to decline or declining in all regions,
while capital investment showed improvement in the Chugoku and Shikoku regions.
The BOJ official said that companies' willingness to invest in the medium and
long terms has not declined on the back of expectations that demand in emerging
economies will recover.
The Sakura Report is akin to the U.S. Federal Reserve's Beige Book, with a
pink-colored front cover reminiscent of cherry blossoms.
The central bank holds a meeting with managers from its 32 branch offices every
three months to take stock of the state of regional economies in order to steer
monetary policy.
In the previous report in July, the BOJ upgraded its economic assessment for
eight of Japan's nine regions, with many seeing capital investment and private
consumption as having stopped decreasing or starting to pick up amid brisk
exports to emerging economies.
But with the yen continuing to rise against the U.S. dollar, the BOJ eased its
monetary grip further on Oct. 5 by effectively resuscitating its
zero-interest-rate policy. It also decided to set up a program to buy long-term
government bonds and other potentially risky assets to bolster liquidity.
The government and the BOJ could face further pressure to take measures to prop
up the economy, depending on currency movements and how much the economy slows
down.
The yen's strength adversely affects the earnings of Japanese exporters and is
believed to be slowing the nation's export-driven economic recovery.
Referring to the BOJ's latest monetary easing steps, Shirakawa told the branch
managers, ''The bank will continue to carefully examine the outlook for
economic activity and prices, and take policy actions in an appropriate manner
as a central bank.''
==Kyodo
2010-10-15 21:16:03