TOKYO (MNI) – The Bank of Japan on Wednesday downgraded its view on
consumer spending and exports in its monthly economic report for October
while leaving its assessment of industrial production little changed,
foreseeing a recovery after a temporary slip.

“Production is expected to increase, after showing temporary
weakness primarily in durable consumption goods,” the BOJ said.

In September, it said that “production is expected to continue to
trend upward, although it is likely to temporarily show weakness
primarily in durable consumption goods.”

Japanese industrial production unexpectedly slumped for a third
month in a row in August, falling 0.3% on-month after -0.2% in July and
-1.1% in June, on lower demand for general machinery, liquid crystal
devices and trucks.

Amid signs of a global economic slowdown, the seasonally adjusted
monthly drop in August came in much weaker than the consensus call of a
1.1% rise and far below the 1.6% m/m increase predicted for August by
the ministry’s forecast survey last month.

Moreover, output is seen continuing to decline in the coming two
months. METI’s survey of firms’ forecasts showed that production is
expected to dip by 0.1% m/m in September — revised down from the 0.2%
rise estimated in last month’s survey — before plunging by 2.9% in
October (first estimate).

The latest BOJ report also said, “Private consumption is likely to
weaken temporarily mainly due to the ending of the boost from the
extremely hot weather and the expiration of subsidies for purchasing
energy efficient cars, but is expected to pick up again thereafter.”

Last month, it said: “Private consumption is expected to remain on
a recovery trend, despite a likely temporary weakening mainly due to the
ending of the boost from the extremely hot weather and the abolition of
subsidies for purchasing energy efficient cars.”

As for exports, the main driver behind the current modest economic
recovery, the BOJ said, “Growth in exports and production has
recently been decelerating.”

It was a downward revision from its assessment last month: “Exports
and production have been increasing, albeit at a slower pace.”

On the current economic climate, the BOJ slightly downgraded its
overall economic assessment for October from the previous month, saying,
“Japan’s economy still shows signs of a moderate recovery, but the pace
of recovery is slowing down.”

In September, it said, “Japan’s economy shows signs further signs
of a moderate recovery.”

Looking ahead, the BOJ said, “Japan’s economy is likely to recover
at a moderate pace after a temporary slowdown.”

It was little changed from the bank’s view seen in the September
report: “Japan’s economy is likely to recover at a moderate pace,
although the pace of improvement is likely to slow temporarily.”

The BOJ left its assessment of financial conditions and consumer
prices from the previous month, saying “Financial conditions have
continued to show signs of easing.”

On the price front, it also repeated its view: “The year-on-year
pace of decline in consumer prices is expected to slow as a trend as the
aggregate supply and demand balance improves gradually.”

The BOJ policy board made a drastic policy shift on Tuesday,
cutting the target for the already super-low overnight interest rate to
a range of 0.0% to 0.1% from 0.1% in order to counter growing risks of
an economic slowdown.

It was the first rate cut by the BOJ since December 2008, when it
lowered the target for the overnight lending rate among commercial banks
to 0.1% from 0.3%.

The action deviates from the previous conviction by Shirakawa that
0.1% was the lowest possible rate that would not hurt money market
functions.

But the governor told reporters that the BOJ will prevent overnight
lending rates from plunging toward zero, which would kill off the
functioning of money markets, by keeping the interest rate it pays on
excess reserves commercial banks hold at the central bank at 0.1%

The BOJ also decided on Tuesday that it will consider launching a
temporary fund on its balance sheet for buying a total of Y5 trillion in
financial assets including Japanese government bonds, commercial paper,
corporate bonds, exchange-traded funds (ETFs) and Japan real estate
investment trusts (J-REITs).

tokyo@marketnews.com
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