Japan's economy on moderate recovery track as overseas demand grows: BOJ

08:25, June 17, 2010      

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The Bank of Japan (BOJ) on Wednesday said that the nation's economy is showing further signs of recovery on the back of a continued upturn in exports and production as overseas demand increases.

The central bank said in its monthly report on financial and economic developments that as economic circumstances continued to improve overseas, domestic production and export levels have increased commensurately to meet the demand.

According to the report production and exports in Japan will likely continue, however the pace of the increase may moderate gradually.

"The uptrend in exports and production is expected to continue, reflecting continued improvement in overseas economic conditions, although the pace of increase is likely to moderate gradually," the BOJ said maintaining its assessment that Japan's economy is likely to recover "at a moderate pace."

Japan's employment and income situation, the BOJ noted, remained "severe," but according to the report, "the degree of severity has eased somewhat."

The central bank expects public investment to continue to decline, but domestic demand to continue to improve but at a moderate pace due to firms' excessive capital stock and employment situations.

Improved corporate profits have been partially helped by the bank maintaining its super-low overnight call rate at 0.1 percent, although the bank said that the stimulative effects from low interest rates are still partly constrained.

Businesses view financial institutions' lending attitudes as harsh, the report said, however firms as a whole regard the situation as improving.

The BOJ announced Tuesday it intends to introduce a new funding initiative at the end of August aimed at encouraging banks to increase lending to industries with growth potential, such as the eco-tech, health and elderly care sectors.

The bank unveiled its plans to offer a total of 3 trillion yen (32.84 billion U.S. dollars) in loans to private banks to provide fiscal support for such economic growth areas, for a period of one year at a razor-thin interest rate of 0.1 percent a year.

As regards small businesses, many small firms still view their financial situations as weak, but the BOJ maintained that overall the actual financial positions of firms, including small ones, have continued to show signs of easing.



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