BOJ downgrades all regional economies

BOJ downgrades all regional economies
High energy and raw materials costs, declining exports blamed
Kyodo News
The Bank of Japan downgraded its economic assessment of all nine regions Monday, citing the negative impact of high energy and raw materials costs as well as decreasing exports due to the slowdown in the global economy.
Bad news day: Bank of Japan Gov. Masaaki Shirakawa (center) attends a meeting of BOJ regional branch managers at the central bank Monday. KYODO PHOTO


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BOJ Gov. Masaaki Shirakawa said Japan's economy is highly likely to remain "sluggish for the time being as it becomes clear that the world's economy is slowing."
The downgrading in the BOJ's quarterly Sakura Report, which was released during a meeting of BOJ branch managers, added to the view that the economy has completely halted its longest postwar expansion phase amid the deepening credit turmoil.
The BOJ began releasing the report in April 2005. This was the first in which the central bank cut the assessment on all of Japan's nine regions at the same time.
"Economic growth had been sluggish in general, mainly due to the effects of earlier increases in energy and materials prices and weaker growth in exports, although there were some regional differences," the report says.
It underlines that the economy has lost steam, with individuals reluctant to spend their money under pressure from rising gasoline, food and other daily goods amid slow growth in their income.
The nine regions are Hokkaido, Tohoku, Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku, Shikoku and Kyushu-Okinawa.
At the meeting of the central bank's 32 branch managers, Shirakawa said corporate and household demand could slow further given the lingering effects of high oil and other commodity prices.
The BOJ chief also said an increasing number of bankruptcies has made credit conditions tighter with smaller firms having trouble raising fresh capital.
He gave little indication about future monetary policy, reiterating the BOJ will closely monitor upside risks to inflation and downside risks to growth.
His warning followed the result of the central bank's latest "tankan" survey, released earlier this month, which showed that business sentiment at large manufacturers, a key component, had fallen to its lowest level in more than five years.
The terms of trade are improving, Shirakawa said, but added their earlier deterioration has generated "downside risks" to private-sector demand even as commodity prices have started to decline.
The global financial crisis remains the biggest source of concern for the BOJ.
The money market is maintaining a relatively "stable condition" in spite of the credit turmoil, compared with markets in the United States and Europe, he said, while warning the crisis in the global financial market could spread further and affect the wider real economy.
There are more companies going under in the real estate and construction industries, which are believed to be under the influence of the U.S. subprime mortgage crisis, he said.
The BOJ is closely watching developments and the "increasing tendency of credit costs," with more banks wary of extending fresh loans, he said.
August CI clipped
The government on Monday slightly revised downward a key economic gauge for August but left unchanged its basic assessment of the economy for that month as "worsening."
The Cabinet Office said the composite index of coincident economic indicators for August stood at 100.6 against 100 for the base year of 2005, down from a preliminary reading of 100.7 released earlier this month.
The revised reading represents a drop of 2.9 points from July.
The office adopted the composite index, or CI, as the mainstay gauge of the economy in place of the diffusion index, or DI, starting with its April survey. The CI is considered more helpful in measuring the degree and pace of change in each indicator than the DI.
The composite index of leading economic indicators, which predicts economic developments over the coming months, was revised downward from a preliminary 89.3 to 89.0, down 2.4 points from July.
The index of lagging indicators, which measures economic performance in the recent past, was revised upward to 100.5 from a preliminary 100.2, but was still down 0.5 point from July.

(posted by Nathalie, Building Brands)