The Bank of Japan said Friday that while the country's economy continues to be in the doldrums, there are some signs conditions are improving.
While the upward revision of growth prospects was only slight, it marks the first time the central bank has actually revised up its assessment of the domestic economy since July 2000.
The central bank's more upbeat perspective on Japan's growth prospects follows in the footsteps of the Cabinet Office, which also reported in its monthly economic assessment report released earlier in the week that while weaknesses remain, there are moderate signs of improvement.
"Japan's economy continues to worsen as a whole, but downward pressure from falling exports and high inventories is gradually abating," the Bank of Japan said in its monthly economic report. In February's analysis, the bank stated "Japan's economy continues to worsen," which led many investors to fear a financial crisis to break out in March.
Meanwhile, the Cabinet Office also upgraded its assessment for the first time in nearly two years this week, pointing out in its monthly report that "the economy is still in a severe situation but some signs of bottoming out can be seen."
But both the Bank of Japan and the Cabinet Office have indicated that signs of U.S. economic recovery, rather than any fundamental improvement in Japan's economic health, will be the biggest factor enhancing the country's growth prospects.
In particular, the central bank pointed out that the decline in exports "is beginning to end," while the electronics industry is showing some signs of buoyancy once again.
"Overall, the economic deterioration in Japan is projected to moderate steadily as production stops declining," it said.
Yet the biggest cause for Japan having little or no growth over the past decade comes not from the decline in exports, but from the burst of the stock and real estate markets, and the subsequent accumulation of non-performing loans by the country's banks. As such, any sustainable growth in the longer-term requires the government taking solid measures to reduce bad loans and thus ease the credit crunch, as well as to encourage investments.
Consequently, investors were not encouraged by the government's latest report, and the benchmark Nikkei-225 industrial average dropped 181.70 points to close at 11,345.08, while the yen continued to weaken still further against the U.S. dollar, falling to 137.2 yen to the greenback in Asian trading late Friday.
