MW: Bank of Japan downgrades all nine regions as 'sluggish'
By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- The Bank of Japan lowered its assessment of the nation's regional economies Monday, saying all nine regions appear to be weakening.
The central bank's October report said the regional economies have been getting squeezed by a combination of sluggish exports and deteriorating terms of trade.
The report will likely add to the perception that downside risks to the economy are beginning to displace upside risks to prices in the setting of Japanese monetary policy. However, the regional outlook report, which brings together the Bank of Japan's 32 domestic branches, in and of itself isn't considered central to decision making on interest rates.
The futures markets were pointing to a reduced likelihood of a rate reduction arising at the Bank of Japan's next policy board meeting, with the odds of a cut of a quarter of a percentage point falling to 8% from 12% on Friday, according to calculations by Credit Suisse using overnight interest-rate swaps.
"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, although there were some regional differences," the Bank of Japan said.
The Bank of Japan's previous report, issued in July, lower its assessments on eight regions. Monday's report was the first time that the conditions for all nine regions have been cut since April 2005.
Overall, fixed-asset investment by businesses was generally flat to weakening, the report said. Private consumption was also leaning to the soft side because of stagnant household income and the effects of higher energy and food prices.
The report noted private consumption was particularly weak in the northern island of Hokkaido and the southwest region of Chugoku. Other regions were "relatively weak" or "weakening."
In terms of business investment, Hokuriku was revised down significantly, while softer downgrades were seen in four other regions.
Also Monday, Bank of Japan Governor Masaaki Shirakawa said the central bank will monitor tensions in global markets and financial conditions in Japan, noting there had been a spike in bankruptcies in the Japanese real-estate and construction sectors.
