BOJ Shirakawa warns Japan economic outlook severe

Sun Nov 27, 2011 10:43pm EST
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By Leika Kihara

NAGOYA, Japan (Reuters) - Bank of Japan Governor Masaaki Shirakawa on Monday warned the country's economy will remain in a severe state for now as Europe's sovereign debt crisis and yen rises cloud the outlook, signaling the central bank's readiness to boost monetary stimulus further if risks to the recovery heighten.

But he said Japan cannot escape deflation just by having the central bank print money, stressing that government and corporate efforts to boost productivity and nurture new industries were also necessary.

Shirakawa stuck to the view that Japan's economy will eventually resume a moderate recovery backed by solid demand in emerging nations, but warned that Europe's debt woes were the predominant risk to this outlook.

He also said Japan will continue to seek G7 and G20 understanding over its action to curb sharp yen rises, stressing that Tokyo's latest intervention was aimed at curbing excessive and disorderly currency moves.

"When uncertainty over the overseas economic outlook is high, as is the case now, yen rises may hurt Japan's economy by reducing exports and corporate profits as well as by worsening business sentiment. We need to be mindful of this," he told business leaders in Nagoya in the central Japan prefecture of Aichi, home to automobile giant Toyota Motor Corp (7203.T: Quote).

"Japan's economy will likely be in a severe state for the time being, especially with respect to exports," he said.

Japan intervened in the currency market and eased monetary policy in October to ease the pain on the export-reliant economy from sharp yen rises and slowing overseas growth.

The BOJ kept monetary settings unchanged this month but warned of the widening fallout from Europe's debt crisis, signaling its readiness to ease policy again if Japan's economic recovery comes under threat.   Continued...