October 29, 2001

Business and Finance - Asia

Bank of Japan Releases Bleak Forecast
For Economy, Leaves Policy Unchanged

A WALL STREET JOURNAL ONLINE News Roundup

TOKYO -- Japan's central bank painted a bleak picture for the nation's economic growth Monday, conceding that the economy is likely to shrink until March 2003.

Earlier in the day, the Bank of Japan left monetary policy unchanged by keeping interest rates down at zero, upholding a decision made in March. It also decided to keep ample cash flow to commercial banks.

The bank said it foresaw the economy contracting 1.2% to 0.9% for this fiscal year ending in March 2002.

It had earlier projected the gross domestic product -- the value of goods and services produced in a nation -- to grow in a range of 0.3% to 0.8%.

Government officials repeatedly have said that Japan's official target for growth this fiscal year is unrealistic. Some analysts say the nation already has entered a state of recession, generally defined as when the economy contracts for at least two consecutive quarters. Official figures so far have shown one quarter of contraction.

For the fiscal year ending in March 2003, the central bank's forecast range is from 1.1% contraction to 0.1% growth.

The bank said that Japan's recovery depends on the health of overseas economies, especially in the U.S. If exports recover, the economy's deterioration could stop, it said.

"The economy would stop worsening in the second half of next fiscal year," it said. "This is the standard scenario."

The bank also reiterated its policy of maintaining at 6 trillion yen ($49 billion) or above the balances held by commercial banks at the BOJ. The money in those accounts makes it easier for banks to have money to lend to Japanese businesses.

The central bank's decision had little effect on stock or currency trading in Tokyo, as it was widely expected.

Japan has been struggling amid a decade-long slowdown as exports fall, consumer spending remains flat and Tokyo share prices have fallen to 17-year lows.

Last month, the Bank of Japan lowered the largely symbolic official discount rate -- the rate the central bank charges financial institutions -- to 0.10% from 0.25%.

That move was an attempt by the bank to show its determination to work with its international counterparts to keep stability in global markets in the aftermath of the Sept. 11 terrorist attacks in the U.S.

Auto Output, Industrial Production Fall

Separately, the Japan Automobile Manufacturers' Association said Monday that Japanese output of cars, trucks and buses fell 1.8% on the year in September, marking the first such fall since July, due to sluggish consumer spending in the wake of the U.S. terrorist attacks.

Total vehicle production for the month came to 828,207 units. Domestic vehicle demand in September totaled 529,073 units, down 3.9% from a year earlier.

The association estimated vehicle exports in September fell about 10% on year. It will release complete figures later this month.

Meanwhile, Japanese industrial output fell 2.9% in September from a month earlier, showing the sharp slowdown in manufacturing continues to hammer the economy.

The drop in production, announced Monday by the Ministry of Economy, Trade and Industry, was slightly worse than the estimate of economists surveyed by Dow Jones Newswires and Nikkei News, who forecast on average a decline of 2.4%.

The steep fall in September left production down 4.3% in the July to September period, the third straight quarterly decline, highlighting the damage inflicted on the economy by the global slump in information technology demand and the rapid slowdown in the U.S.

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