— Adds Osaka Branch Manager Remarks In 18th-25th Paragraph

TOKYO (MNI) – The Bank of Japan on Friday said that three out of
the nine regions downgraded their regional economic assessment from
three months ago, noting that the pace of recovery has slowed.

The latest assessment is based on reports from BOJ branch managers
who met here for a one-day quarterly meeting.

“All nine regions in Japan judged that, on the whole, their
economies had either recovered at a moderate pace of picked up,” the BOJ
said in its latest regional economic report.

“Three regions (Kanto-Koshinetsu and Tokai in central Japan and
Chugoku in the west), however, reported that the pace of recovery or
pick-up had recently slowed mainly due to the waning effects of policy
measures and the slowdown in overseas economies.”

The three regions lowered their economic assessment from July.

It is the first time since April 2009 that at least one region has
lowered its economic assessment from the previous meeting.

In April 2009, seven out of the nine regions cut their regional
economic assessment from three months earlier.

In the latest report, the BOJ said, “Many regions continued to
point either to the low level of economic activity or to differences in
developments among regions or industries.”

The quarterly economic report, or Sakura Report, is equivalent to
the U.S. Federal Reserve’s Beige Book.

After its last policy-setting meeting, the BOJ board on Oct. 5
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.”

In Friday’s regional report, the BOJ said, “The employment and
income situation remained severe, but all regions reported that the
degree of severity had eased.”

As for capital investment, it said that “six regions noted that it
was picking up, had begun to pick up, or that it had increased although
remaining at a low level.”

“Two regions reported that business fixed investment had stopped
declining,” it added.

Meanwhile, six regions said that private consumption was picking up
or that its decline had been coming to a halt “because the degree of
severity in the employment and income situation had eased.”

The BOJ also said that “almost all regions pointed to the drop in
sales of passenger cars following a last-minute increase in demand ahead
of the expiration of subsidies for purchases of environmentally friendly
cars.”

Managers from the BOJ’s 32 domestic branches and two general
managers from the U.S. and Europe gathered to discuss economic and
financial conditions at the bank’s head office.

BOJ Osaka Branch Manager Hideo Hayakawa told a news conference that
both exports and production in his region continued rising but at a
slower pace.

“Growth in exports to the U.S. and Europe hasn’t fallen much, but
the pace of growth in exports to Asia, mainly China, has slowed,”
Hayakawa said.

He emphasized that attention should be paid to developments in
the slowing global economy and the strong yen, and their impact on
corporate sentiment.

Hayakawa said that firms in Kansai in western Japan, where major
electronics makers are based, are worried about the drag of the strong
yen on exports.

“Firms (in Kansai) have been hit by the strong yen against the
Korea won, not the dollar. A weaker won is widely regarded as the
biggest risk factor for them,” he said.

Final goods made by electronics firms in Kansai have been
exporting more to Asia and emerging countries than to the U.S.

He also noted that the slowing economy in Kansai seemed to have
been caused by the yen’s rise in April and May, not the yen’s rise in
July and August.

“The yen didn’t rise against the dollar much but did rise against
the won at that time,” Hayakawa said.

Earlier on Friday, BOJ Governor Masaaki Shirakawa told them in his
opening remarks at the meeting that the BOJ must pay attention to
downside risks to sustained economic growth and a recovery from years of
deflation.

“Comparing with the outlook presented in the bank’s July interim
assessment, the economic growth rate is likely to be somewhat lower than
expected,” he said.

“In addition, amid heightened uncertainty about the future,
especially for the U.S. economy, attention should still be paid to
downside risks to Japan’s economy.”

Shirakawa also said, “It has become more likely that the return of
Japan’s economy to the sustainable growth path with price stability will
be delayed.”

He maintained the BOJ’s view that Japan’s economy is likely to
return to a sustainable recovery path, although that the pace of
economic improvement will slow for the time being.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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