RTTNews - Thursday, the Bank of Japan raised its economic assessment for the third month, citing an increase in public investment and pick-ups in exports and production.
In its latest monthly report of recent economic and financial developments, the central bank said Japan's economic conditions have stopped worsening, revising June's view that economic conditions, after deteriorating significantly, have begun to stop worsening.
On July 13, Japan's Cabinet Office also revised up its economic assessment for the third straight month.
Looking forward, the BoJ said Japan's economic conditions are likely to turn upward over time. In June, the bank had said Japan's economy was likely to show clearer evidence of leveling out over time.
Moreover, the central bank said exports and production are expected to continue recovering, mainly due to progress in inventory adjustments both at home and abroad.
Public investment is expected to continue increasing. On the other hand, domestic private demand is likely to remain relatively weak with corporate profits and firms' funding conditions remaining severe, and a worsening employment and income situation.
Wednesday, the Policy Board of the central bank unanimously voted to hold the uncollateralized overnight call rate at 0.1%. The Board also stood united in extending the overnight purchases of commercial papers and corporate bonds to December 31, 2009 from September 30. Special funds-supplying operations to facilitate corporate financing were also extended till December 31. At the same time, the central bank will continue the U.S. dollar funds-supplying operations till February 1, 2010.
BoJ Governor Masaaki Shirakawa said yesterday that the uncertainty for the economy and finances remains high and the central bank may extend the steps further if the situation doesn't improve enough. Moreover, he said the sustainability of growth depends on spending recovery.
Also on Wednesday, the International Monetary Fund said the Japanese economy is expected to contract 6% this year, but expand 1.75% in the next year.
The IMF said that despite tentative signs of stabilization in the country and the global economy, the outlook remains uncertain. The risks to the outlook remain on the downside, reflecting the rapidly deteriorating labor market, tight financial conditions, and external uncertainties, it said. Further, the IMF forecasts that inflation in Japan will remain negative until 2011.
A sustained recovery will likely emerge during the course of 2010 but will hinge critically on improvement in overseas lending conditions and trade, the international lender pointed out.
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