Japan's economy is expected to remain stagnant for some time

http://news.yahoo.com/s/afp/20081020/bs_afp/japaneconomybank_081020075107


A worker at Japan's auto giant Toyota on a vehicle production line in Miyata City. The country's economy is expected to remain stagnant for a while as a global economic slowdown weighs on exports, the country's central bank chief has said.
(AFP/File/Ken Shimizu)


TOKYO (AFP) – Japan's economy is expected to remain stagnant for some time with a global slowdown weighing on exports, the country's central bank chief said Monday.

Corporate earnings in Asia's largest economy are shrinking and companies are cutting their capital investment, Bank of Japan governor Masaaki Shirakawa told a meeting of the central bank's branch managers.

"The economy of our nation is currently stagnant due in part to slower exports stemming from the lingering effects of high energy and material prices and a slowdown in overseas economies," he said.


Business confidence remains cautious while consumption has turned softer due to inflation and sluggish wages, Shirakawa said.

"Looking ahead, it is highly probable that the economy will remain stagnant as it has become clear that overseas economies continue to slow down," he said.

Japan's economy suffered its worst contraction in seven years in the second quarter of 2008 and many analysts believe it is already in recession.

The Bank of Japan also downgraded its assessment of the country's nine regions in a quarterly report.

"Economic growth had been sluggish in general, mainly due to the effects of earlier increases in energy and materials prices and weaker growth in exports," the report said.

Corporate profits continued to decrease and business sentiment has become even more cautious, leading to cutbacks in investment. Private consumption was also soft while production was relatively weak, the report said.

But the central bank said that Japan's financial system remained in relatively sound health compared with those of the United States and Europe.

"The Bank of Japan will continue our efforts to secure the stability of financial markets," Shirakawa said.

Japanese banks have been less severely hit so far by the global financial crisis compared with many of their Western peers, taking the opportunity to buy up chunks of ailing Wall Street banks.