Bank of Japan gloomy on outlook for exports owing to weak Asian demand

PUBLISHED : Tuesday, 12 August, 2014, 12:56am
UPDATED : Tuesday, 12 August, 2014, 12:56am

Sluggish Asian demand and a shift in Japanese production overseas will continue to weigh on exports, the Bank of Japan said, underscoring its waning conviction that overseas shipments will soon pick up and support a fragile economic recovery.

The central bank also warned that while factory output is likely to rise moderately, production of cars and personal computers may remain weak due to soft demand.

"China's economy is set to sustain stable growth but excess slack in its manufacturing sector, which has a big effect on Japan's economy, remains a problem," the bank said in a monthly economic report for August released yesterday.

"Some other emerging nations ... may also see growth lacking momentum for a prolonged period," while a continued shift in Japanese production overseas will also cap export growth for the time being, it said.

Some emerging nations ... may also see growth lacking momentum

The report said exports would likely "head for a moderate recovery", offering a slightly gloomier view on the outlook than last month, when it said more clearly that overseas shipments would "recover moderately". The bank issues a summary of its economic assessment on the day of its policy-setting meeting, which was on Friday for this month, and releases a more thorough analysis in a monthly report the next market day.

On Friday, the bank maintained its view that the economy continues to recover moderately but revised down its assessment on exports to say they were "weakening". The summary did not offer a detailed assessment on the outlook for exports, nor an explanation on why underlying exports have been weak.

On household spending, yesterday's report said it has held firm as the effect of a sales tax increase in April began to subside. But the bank acknowledged that some sectors were suffering from the tax rise more than others.

New car orders and sales of consumer electronics have yet to rebound, while spending on food and sundries were recovering, the report said.

"Many industries say the tax hike effect is gradually easing. But some say the pace of recovery is slowing somewhat, partly due to bad weather, or that the strength of pickup varies depending on items and regions," it said.

Data tomorrow is expected to show Japan's economy probably shrank for the first time in nearly two years during the April-June quarter, dragged down by weaker-than-expected consumer spending after the sales tax rise and disappointing factory output, a poll showed.

The severity of the contraction could raise pressure on the Bank of Japan to ease policy further and would complicate prospects for a planned second rise in the sales tax next year.