BOJ warns of economic standstill as exports slump

Wed Dec 21, 2011 4:36am EST
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By Leika Kihara

TOKYO (Reuters) - Japan's central bank offered a bleaker view of the economy and the government warned of worsening business sentiment as exports slumped, adding to evidence of the pain Europe's debt crisis is inflicting on global growth and Japan's recovery prospects.

But in a sign Japan's tattered finances leave it with little room for more fiscal stimulus, Rating and Investment Information Inc (R&I) stripped the country of its AAA status, the first downgrade by a domestic credit ratings agency.

That puts the onus on the Bank of Japan, which kept monetary settings unchanged at a rate review on Wednesday but cut its economic assessment and acknowledged that growth will stagnate at least until spring next year.

BOJ Governor Masaaki Shirakawa said that while Japan's economy was still headed towards a moderate recovery, Europe's sovereign debt crisis and economic stagnation were hurting global growth including Japan.

"A delay in dealing with Europe's crisis may have a severe impact on the global economy. We must prevent this from happening at all cost," he told a news conference.

As widely expected, the BOJ held off on offering additional monetary stimulus after having eased policy two months ago with an increase in asset purchases, in a bid to save its limited options in case the economy faces deeper troubles next year.

"We expect the BOJ to implement additional easing steps in January-March as there is a chance the yen will appreciate further during that period," said Takahide Kiuchi, chief economist at Nomura Securities in Tokyo.

"Another trigger could be a credit rating downgrade for European sovereign debt. If that happens and causes financial market turmoil, coordinated monetary easing with U.S. and European central banks could be a possibility."   Continued...