Downgrade for national economy amid growing political unease
Special report: Japan
Terry Macalister Tuesday April 17, 2001 The Guardian
The Bank of Japan yesterday added to a growing sense of gloom by downgrading its forecasts on the state of the local economy for the second consecutive month. The institution cited falling exports and lower industrial production for its negative outlook, which was made worse by new figures showing a downturn in department store spending.
Analysts at the New York headquarters of the investment bank Merrill Lynch said they now anticipated that there would be lower level of growth in gross domestic product in the second and third quarters of the year.
"This means that we expect a technical recession," said Matthew Higgins, a Japanese specialist at the bank.
The bleak assessment by the central bank - which revived a zero interest rate policy last month - comes only days after the Japanese government described the struggling economy - which is still the second largest in the world - as "weakening" for the first time since 1995.
The Bank of Japan's report for the month of April said the country's sales abroad had been hit by the slowdown in the North American and Asian economies.
"Adjustments in economic activity have been under way as production is declining, reflecting a fall in exports," it concluded. The bank highlighted a further weakening of industrial output activity alongside a growing need for inventory adjustments and a slowing in the growth of corporate earnings.
Business sentiment was, according to the bank, "worsening, particularly in manufacturing industries". It predicted that there would be a prolonged deceleration in overseas economies.
The central bank also warned of deflationary pressures piling up but took heart from an anticipated future bounceback in the North American economy.
Its immediate concern about falling production compared with March's report, which talked about the recovery in Japan's economy "coming to a pause" due to lower exports.
Meanwhile, the Japan Department Stores Association said sales throughout the Tokyo area had fallen 0.6% in March from a year earlier to ¥189.9bn (£1bn).
Economic figures published earlier showed Japanese exports falling 1.3% in February, down from a rise of 2.9% in January and double-digit gains last year.
The rapidly slowing economy is bad news for the four contenders in the ruling Liberal Democratic party's presidential election. The poll for the office of prime minister takes place on April 24.