–Financial Conditions Have Shown “Further” Signs of Easing

TOKYO (MNI) – The Bank of Japan on Wednesday upgraded its
assessment of the impact from its highly accommodative monetary policy,
pointing to a drop in corporate funding costs and the improving lending
attitude of banks.

The BOJ also slightly upgraded its assessment of capital spending
but lowered its assessment of production.

But the central bank left its assessment of the current economic
climate and its outlook unchanged from the previous month.

Japanese financial conditions have shown “further” signs of easing,
“as seen in the declining trend in firms’ funding costs and the
improvement in lending attitude of financial institutions,” the Bank of
Japan said in its latest monthly report.

In November, the BOJ said, “Financial conditions have continued to
show signs of easing.”

The BOJ noted that market interest rates, including bank lending
rates to firms, had fallen and so judged that the effects of its easy
policy had intensified.

On capital spending, the December report said, “business fixed
investment has started to pick up.”

This is a modest upgrade from the wording in its November report,
which said: “Business fixed investment is showing signs of picking up.”

However, its assessment of production was downgraded slightly
following recent weak data.

The latest report said: “Reflecting these developments (weak
consumption) in demand both at home and abroad, production has recently
declined slightly.”

In November, the BOJ said production has recently been more or less
flat.

Japanese industrial production fell 2.0% in October from September,
the fifth straight monthly decline, after the government in September
ended its subsidy for buying low emission vehicles and amid weak
overseas demand. However, the trade ministry has forecast that output
will rebound 1.4% month-on-month in November and a further 1.5% in
December.

The assessments of other economic components were mostly left
unchanged from the previous month.

“Japan’s economy still shows signs of a moderate recovery, but the
recovery seems to be pausing,” the latest economic report said.

It also said, “Japan’s economy is likely to grow at a slower pace
for some time, but is expected to return to a moderate recovery path.”

In November, the BOJ revised down slightly its overall economic
assessment for the second time in two months. October’s downward
revision was the first since January 2009.

The description of the recovery as “pausing” is in line with the
government’s latest assessment.

In November, the government revised down its overall assessment of
the economy for the first time in 20 months, saying the recovery was
“pausing” after recent improvement as slower global growth was denting
demand for electronics exported via Asian countries.

The BOJ’s policy board on Tuesday voted unanimously to leave the
target for the unsecured overnight lending rate among commercial banks
unchanged in a range between zero and 0.1%.

The BOJ’s monthly report didn’t refer to its new Y5 trillion
asset-buying program, meaning it is maintaining its scale for now as
developments in the real economy and financial markets have not
increased the need for a further credit easing.

The BOJ also maintained its view on the outlook for consumer
prices, saying, “The year-on-year rate of decline in consumer prices is
expected to slow as a trend as the aggregate supply and demand balance
improves gradually.”

tokyo@marketnews.com
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