— Adds Osaka Branch Manager Comments, Background At Bottom

TOKYO (MNI) – The Bank of Japan said on Monday that seven out of
the nine Japanese regions downgraded their economic views from three
months ago, reflecting the global economic slowdown and the drag of the
strong yen on exports.

The remaining two regions left their economic assessment unchanged
from October.

“Compared with the last assessment in October 2011, seven regions
(Hokkaido, Hokuriku, Kanto-Koshinetsu, Tokai Kinki, Chugoku and
Kyushu-Okinawa) reported that the pick-up in their economic activities
had paused recently, mainly due to the effects of a slowdown in overseas
economies,” the BOJ said in its quarterly report on regional economies.

“Specifically, these regions noted that the pace of the pick-up was
moderating, the pick-up appeared to be pausing, or the economy had
paused.”

In October, five regions reported that their economies had been
picking up, aided mainly by the removal of supply-side constraints
caused by the March earthquake disaster.

Based on today’s report and various economic data, the BOJ board
will review its medium-term growth and inflation outlook presented in
the bank’s semi-annual Outlook Report, at its next policy meeting on
Jan. 23-24.

“Several regions reported that investment had become cautious,
reflecting the slowdown in overseas economies and the appreciation of
the yen,” the BOJ said.

With regard to private consumption, six regions reported “a pick-up
or continued increase in private consumption.”

As for production, “most regions reported that it had recently been
relatively weak or was more or less unchanged, or that the pace of
increase was moderating, mainly due to weaker exports stemming from the
slowdown in overseas economies.”

Many region reported that improvement had been observed in the
employment and income situation, although that severity remained.

Earlier on Monday, BOJ Governor Masaaki Shirakawa repeated his
warning that the European sovereign debt crisis may depress global
economic growth.

In his opening remarks to BOJ branch managers who gathered for a
quarterly meeting, Shirakawa also repeated the bank’s latest view that
the European problems “remain the biggest risk” to Japan’s recovery.

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.

BOJ Osaka branch manager Hideo Hayakawa, who is also one of the six
executive directors supporting the governor, told reporters, “To be
frank, the economy in the Kansai region (in western Japan) is
tenacious.”

“The Kansai economy would not usually benefit from a recovery in
automobile production (based largely in central Japan) and demand for
public works for rebuilding (the north), but it is actually being
supported by those factors,” he said.

The Kansai region has also seen the positive effect of the yen
rise, which lowers import costs, although the strong yen does hurt
exporter profits, he added.

The economic assessment of Kansai, where major firms like Panasonic
and Kyocera are based, was revised down from October and Hayakawa
expects the region to continue to stall for now.

“The economy (in the region) is likely to recover if the European
sovereign debt problems do not worsen and the electric power supply
remains stable,” he said.

Hayakawa, formerly the BOJ’s chief economist, downplayed immediate
adverse effects of the weakening euro against the yen, saying the volume
of Japan’s direct exports to the eurozone is relatively small and thus
that no serious impact has been observed.

The single currency fell to around Y97.04 in Asian morning on
Monday, setting a fresh 11-year low following Friday’s downgrade of
eurozone credit ratings by Standard & Poor’s.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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