TOKYO: The Bank of Japan (BoJ) has cut its assessment for three of the country’s nine regions, the biggest number of downgrades in six years, suggesting that the damage to exports and factory output from slowing overseas demand was broadening.
The largest hit came from sluggish demand in China, a sign that Japan’s recovery prospects would depend heavily on how quickly Beijing’s stimulus measures help prop up its economy.
BoJ governor Haruhiko Kuroda said the economy was expected to continue expanding moderately with robust domestic demand offsetting some of the weaknesses in exports.
But the central bank warned that weakening global growth and simmering Sino-US trade tensions were taking a toll on some Japanese regions reliant on overseas demand.
“We have had to cut our assessments on exports and output for some regions because we’re hearing more complaints about the impact of the global economic slowdown more than three months ago,” said a BoJ official briefing journalists on the quarterly report.
Aside downgrading its economic assessment for three regions, the BoJ raised its assessment for one, and it maintained its view for five.
On output, the BoJ cut its assessment for seven out of the nine regions – the biggest number of downgrades since 2013 – due to weakening demand for semiconductor and machinery.
The BoJ expected the economy to continue expanding moderately and points to resilient capital expenditure as a sign the pain from weakening global growth will not push Japan into recession.
But the report cited several companies that put off investment in new equipment due to uncertainty over the global outlook.
“We decided to forgo a plan to build a new semi-conductor equipment plant as Sino-US trade frictions heighten uncertainty over the global economy,” a machinery maker in Kumamoto, southern Japan, was quoted as saying.
Another company in Kofu, eastern Japan, said shrinking demand for Chinese equipment forced it to slash production by up to 40% from a year earlier, according to the report.
But Yasuhiro Yamada, head of the BoJ’s branch manager in Osaka, western Japan, said many companies in his region believe China’s stimulus measures would help boost demand around the latter half of this year.
“If external demand picks up while domestic demand is still strong, we can expect output to rebound from a temporary soft patch,” Yamada told a news conference.
The report will be among factors the BoJ will scrutinise when it meets for a rate review on April 24-25.
Exports fell for a third straight month in February and industrial output in January saw its sharpest decline in a year, stoking fears Japan could slide into recession.
And yet, many BoJ policymakers are reluctant to ramp up stimulus as years of massive money printing have left the central bank with a dearth of policy ammunition. —Reuters
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