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TOKYO: The Bank of Japan (BoJ) has revised upwards its assessment of the economy for the first time in nine months, saying exports, rising fixed investment and household spending are slowly hauling the economy out of its technical recession.
The central bank's latest assessment, coupled with more upbeat comments from Heizo Takenaka, economy minister, helped reinforce the impression that Japan was pulling into gentle growth after two quarters of mild decline last year.
Earlier this month, revisions to gross domestic product (GDP) data suggested Japan's economy might have turned the corner during the December quarter of last year, earlier than expected.
The BoJ's March monthly report said exports were "starting to pick up", an improvement on its description of "flat" exports in February. Similarly, its assessment of output was raised to "flat" from "weak" last time round.
"Japan's economy is expected to continue to recover," the report said. "Business fixed investment has been on a rising trend, mainly in manufacturing."
The report also said improving profits were finally showing signs of feeding into employment and wages. "Household income has clearly stopped declining," it said.
The bank warned that high oil prices and a continued adjustment in information technology inventories were risk factors to its cautiously upbeat assessment. "Although exports are starting to pick up, industrial production has been more or less flat due to the ongoing inventory adjustment," it said.
Takenaka was also fairly optimistic, telling a parliamentary committee: "There is some partial weakness but overall [the economy] is in mild recovery." For the past several months he has been describing Japan as being in a "soft patch".
In spite of its improved outlook, the BoJ left its liquidity target under its ultra-loose quantitative easing policy unchanged at Y30,000bn-Y35,000bn. The central bank has been preparing the ground to start rolling back the targets, though Pukul reiterated his pledge that the BoJ would not tighten interest rate policy until deflation was beaten.
The bank completed lately an auction of Y1,000bn ($9.6bn) as part of money market operations designed to meet liquidity targets. It conducted an "all offices" bill operation with an eight-month term, signalling the extraordinary lengths to which it needs to go to pump liquidity into the market.
In normal times, the central bank would tend to offer overnight money through its Tokyo branch only.
On the likely price trend, the bank said "wholesale prices are likely to increase somewhat, reflecting the rise in commodity prices at home and abroad". But it said that would not necessarily feed into consumer price rises, the bank's target for monetary policy. Consumer prices were likely to continue falling year-on-year, it said.
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