–Adds Osaka Branch Manager Comments At Bottom

TOKYO (MNI) – The Bank of Japan said on Monday that eight out of
the nine regions in Japan downgraded their regional economic assessment
from three months ago in the wake of weaker exports and production amid
slower global growth.

“Compared with the last assessment in July 2012, eight regions
reported that the pick-up or the recovery in economic activity observed
at the time of the last assessment had come to a pause or that the pace
had moderated, mainly because overseas economies had moved somewhat
deeper into a deceleration phase,” the BOJ said in its quarterly
regional economic report.

At its next policy meeting, the BOJ board will discuss the
prospects for Japan’s recovery based on economic data including the
report. Earlier this month the bank left its policy stance unchanged
after easing last month.

It is the first time since January 2009 that a vast majority of the
regions — eight or nine — have downgraded their economic assessment.

All nine regions cut their economic assessment in October 2008 and
in January 2009 following the failure of Lehman Brothers.

The latest report also said, “The Tohoku region (northern areas hit
by the earthquake disaster last year), meanwhile, reported that the
recovery in economic activity observed at the time of the last
assessment had continued to date.”

“Although there seemed to be some signs of weakness, the economy
(in Tohoku) had been recovering as a whole, aided mainly by a
significant increase in public investment.”

The BOJ in July said that all nine regions upgraded their economic
assessment from three months earlier on the back of robust domestic
demand and recovering exports.

The latest report showed that the assessment of production was
somewhat downgraded in six regions from three months ago.

“As for production, six regions reported that it was declining or
had been relatively weak, mainly against the background of the slowdown
in overseas economies,” the BOJ said.

With regard to capital investment, it said, “eight regions reported
that it was increasing or picking up.”

The assessment of private consumption was downgraded in all nine
regions from three months ago for the first time in three years and nine
months.

Managers from the BOJ’s 32 domestic branches and two general
managers from the U.S. and Europe gathered here for a one-day quarterly
meeting to discuss economic and financial conditions.

On Monday BOJ Governor Masaaki Shirakawa repeated the bank’s recent
statement that it will continue monetary easing to guide the economy
toward a recovery.

In his opening remarks at the branch managers’ meeting, Shirakawa
also reiterated that the BOJ will continue watching the dampening
effects of the yen’s rise on Japanese corporate profits and business
sentiment.

BOJ Osaka branch manager Masayoshi Amamiya, who is also one of the
six executive directors supporting the governor, told reporters that his
region has been hit by weak overseas demand for IT and prolonged
sluggishness of exports to China.

“A recovery of demand for IT is weak at home and overseas. Final
demand (for IT) wasn’t as strong as expected,” Amamiya said.

The economic assessment in the Kinki region was downgraded from
three months ago.

The latest report said, “The economy continues to pause as a whole,
but there seem to be signs of weakness, particularly in production.”

In July, the Kinki said, “The economy continues to pause generally,
although there are signs of picking up.”

“Looking ahead, there are three points that we have to pay
attention to in forecasting the outlook for the economy. They are global
demand for IT, adverse effects of a worsening of relationship of between
Japan and China, and sustainability of domestic demand,” Amamiya said.

With regard to risk factors, Amamiya said that the BOJ Osaka branch
needs to keep a close eye on how strongly or whether the drop in exports
will adversely affect labor and income conditions as well as private
consumption.

Amamiya said, “The environment surrounding exports remains severe
and there are strong calls from corporate executives for fixing the
strong yen.”

tokyo@mni-news.com
** MNI Tokyo Newsroom: 81-3-6860-4822 **

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