Bank of Japan leaves monthly assessment of economy largely unchanged

Bank of Japan leaves monthly assessment of economy largely unchanged

	Published : Thu, 18 Jan 2007 07:48 By : Agencies Print this Story

TOKYO (XFN-ASIA) - The Bank of Japan has left its monthly assessment of economic and financial developments largely unchanged, saying the economy continues to expand moderately.

But the central bank acknowledged that the economy is somewhat weaker than it had thought in October, when it published its medium-term outlook report, because of weaker private consumption.

The Bank of Japan said in its report for this month that it believed the economy would remain on the path to recovery while deflationary pressure eased.

The latest report says that amid easing structural risks, the economy 'is expected to continue expanding moderately' -- which is what last month's report said.

It says fixed-asset investment by businesses, which accounts for around 15 pct of the economy, 'continued to increase on the back of high corporate profits and favorable business sentiment.'

Private consumption, which accounts for 55 pct of the economy, 'has been on an increasing trend, although the pace of rise has been only modest,' the report says.

'Exports are expected to continue rising against a background of expansion in overseas economies,' it says.

'Domestic private demand is likely to also continue increasing, given high corporate profits and the moderate rise in household incomes.'

The central bank said it remained optimistic about the outlook for inflation in the near term, despite the tameness of recent consumer price data.

'The year-on-year rate of change in consumer prices is projected to continue to follow a positive trend as the output gap continues to be positive,' the report says.

The Bank of Japan downgraded slightly its assessment of wholesale prices, saying they had are cently have been somewhat lower than their levels of three months earlier due to the drop in international commodity prices.' Last month's report said wholesale prices 'have recently been at about the same levels as three months earlier' because of declines in oil prices.

Looking back over the past three months, the central bank said 'developments in Japan's economy have so far deviated slightly downward' from its medium-term outlook presented in October.

The central bank attributed this to 'weaker-than-expected private consumption caused partly by temporary downward pressure stemming from the unfavorable weather conditions.'

It acknowledged tepid inflation, saying wholesale prices are 'expected to deviate slightly downward from the trajectory, reflecting the drop in crude oil prices.'

The central bank said that while consumer prices 'have so far deviated slightly downward from the projection,' partly because of the decline in crude oil prices, 'they are expected to develop broadly in line with the projection.'

Nevertheless, the Bank of Japan remains bullish about the future, saying the economy 'is expected to develop broadly in line with the outlook, as a virtuous circle of production, income and spending is likely to remain intact.'

The monthly economic assessment was released after the central bank's policy board finished its two-day meeting, at which the nine members voted 6-3 to leave the overnight call rate target at 0.25 pct, as widely expected by the market.

(1 usd = 120.86 yen)

yasuhiko.seki@xfn.com