Shirakawa Says Downside Risk Rising for Japan Economy

http://www.bloomberg.com/apps/news?pid=20601068&sid=at_2Jy1dnV7I

(Update1)

By Mayumi Otsuma

Oct. 17 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa said ``downside risks'' are rising for the world's second-largest economy as the global financial crisis intensifies.

Economic growth will remain ``sluggish for the time being,'' Shirakawa said in a speech at an annual meeting of Japanese credit cooperatives in Tokyo today. ``We're concerned that Japan will face negative effects should the overall global economy deteriorate significantly.''

Japanese stocks plunged 23 percent this month on concern that a global recession will weaken exports, the main driver of the economy's expansion. The International Monetary Fund said this month that the world economy will grow 3 percent in 2009, the slowest pace in 27 years.



Shirakawa said an increase in bankruptcies in Japan's construction and real estate sector has increased the cost of credit, though the financial system remains ``stable overall.''

Business failures jumped 34 percent last month, the fastest pace in eight years. Inoue Kogyo Co. filed for bankruptcy yesterday, the 17th publicly traded company in the property sector to do so this year, according to data compiled by Bloomberg.

Shirakawa said he's still watching the risk that ``second- round'' inflation will take hold. Price increases in Japan remain largely confined to food and energy and have yet to spur wages.

Consumer prices excluding fresh food climbed 2.4 percent in August, the fastest pace in 11 years. Wages rose 0.1 percent.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: October 17, 2008 04:15 EDT