Japan to recover at a moderate pace: BoJ report

September 8, 2010 1:35 PM EDT

Japan's central bank said on Wednesday economic recovery was on track but enfeebled by less-than-robust growth in exports, continued distress in the jobs sector and a decline in public investment.

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Using cautious language while putting out its monthly economic report, the Bank of Japan (BoJ) said the economy was "likely to recover at a moderate pace, although the pace of improvement is likely to slow temporarily."

The downbeat sentiment on recovery, coupled with a continued yen rally, pushed Japanese stocks down on Wednesday, with the Nikkei stock average dropping 2.2 percent.

In the U.S. the White House said President Barack Obama would announce on Wednesday a three-pronged strategy to breathe new life into sputtering recovery. In an address in Cleveland, Obama was
to announce a $50 billion infrastructure investment initiative and continued tax credits for businesses in research and development. Obama would also announce tax breaks allowing businesses to write off 100 percent of their spending on new plants and equipment through 2011.

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The BoJ said exports are expected to gain traction, as the central bank saw "continued improvement in overseas economic conditions". It also noted that private consumption has been picking up slowly, offering relief to the manufacturing sector hit by yen's rise.

Yen rose on Wednesday to a 15-year high of 83.34 against the greenback, before yielding some ground in later in the day.

Meanwhile, a Japanese Cabinet Office report showed Japanese machinery orders rose 8.8 percent in July, the biggest growth in seven months.

However, the BoJ report said employment scene was far from being sanguine. "The employment and income situation has remained severe, but the degree of severity has eased somewhat," the report said.

The report noted that improving corporate profits would translate into greater investment in business. "Signs of picking up in business fixed investment are expected to gradually become more evident as the improvement in corporate profits continues. However, with firms' persistent sense of excessive capital stock, the pace of improvement in business fixed investment is likely to remain moderate for the time being," says the report.

In a worrisome note, BoJ says consumer prices have continued to drop on a year-on-year basis due to the substantial slack in the economy as a whole. But the bank says the slowing trend in the pace of decline has continued.

This article is copyrighted by International Business Times, the business news leader