Bank of Japan takes more optimistic line (Thanks to Prius)

Bank of Japan takes a more optimistic line

Lily Nonomiya Bloomberg News Tuesday, December 16, 2003

TOKYO The Bank of Japan said Tuesday that the Japanese economy was "recovering gradually" as exporters expand production to meet stronger orders. The assessment marked the fourth consecutive month that the central bank has delivered a more optimistic evaluation of the outlook for the world's second-largest economy.
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"Exports are increasing and business fixed investment continues a gradual recovery," the Bank of Japan said in a monthly report released in Tokyo. Private consumption, which had been weakening, is now "virtually flat" and a decline in household income is gradually coming to a halt, it said.
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Despite the improving outlook, the central bank on Tuesday left its benchmark interest rate target at zero to nurture the longest economic recovery since 1997 and to fight deflation. U.S. and Chinese demand for Japanese exports may continue to outpace growth in the local market, economists said.
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"Exports will serve as a foundation for growth, along with capital spending, which has been strong," said Masaaki Kanno, chief economist at J.P. Morgan Securities Asia.
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Changes in consumer prices are "likely to hover around zero percent for the time being" because of rising rice prices, the central bank said. Eventually, prices "are projected to continue falling slightly."
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Japanese exporters are benefiting from rising global demand. Toyota Motor said in October that had it won more than 10,000 U.S. orders for its Prius hybrid cars, which are only produced in Japan. Toyota's November sales to Europe rose 15.4 percent, the European Automobile Manufacturers Association said last week.
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Exporters including Sharp and Canon have led the 35 percent rebound in the Nikkei 225 stock average from a two-decade low on April 28. Rising share prices have boosted business confidence and reversed losses from stock investments at banks and corporations.
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Growing exports and investment have not ended more than five years of falling prices that have sapped sales and profits at retailers.
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"Consumer spending will be flat at least until next spring," said Hitoshi Ichio, head of research at Mizuho Investors Securities in Tokyo. "Until then, Japan's recovery will have no choice but to depend on exports."
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Department store sales in Tokyo fell 3.9 percent from a year earlier in November, the Japan Department Stores Association said Monday. Sales fell for the 24th straight month.
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Toshihiko Fukui, the central bank governor, and his eight policy board colleagues also voted unanimously to keep monthly purchases of government bonds from banks at ¥1.2 trillion, or $11.1 billion.