Japan Upgrades Economic Assessment

Japan Upgrades Economic Assessment

The Bank of Japan upgraded its assessment of the domestic economy for the first time in three months, as the country is making progress in efforts to restore supply chains disrupted by the March 11 twin natural disasters.

The Japanese central bank revised its economic assessment upward after holding a two-day policy board meeting Monday and Tuesday.

The BOJ had previously viewed the Japanese economy as facing strong downward pressure, mainly on the production side, due to the effects of the devastating earthquake and tsunami that hit the northeastern part of the country earlier this year.

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According to the BOJ’s latest assessment, although the Japanese economy continues to face downward pressure, mainly on the production side because of the effects of the twin natural disasters, it is “showing some signs of picking up.”

The BOJ reiterated its forecast that the Japanese economy will begin to get back on a mild recovery track in the second half of fiscal 2011, which started in April.

At its policy board meeting, the BOJ decided to expand by its lending program by 500 billion yen ($6.25 billion) aimed at spurring growth in high-potential industries. It also unanimously decided to keep its key interest rate unchanged at between zero and 0.1 percent.

The March 11 twin natural disasters directly affected many auto, electronics and other parts makers’ plants, causing disruptions to supply chains. They also caused the immediate shutdown of four nuclear power plants, including the Fukushima No.1 plant at the center of the ongoing nuclear crisis.

As a result, many factories in a wide range of industries, even in the unaffected areas, have been forced to stop or curtail operations due to parts and electricity shortages, making a big dent in exports.

Japan is now the world’s third-largest economy after the U.S. and China. Japan relies heavily on exports for growth.

Although downward pressure remains on the Japanese economy, “production and domestic private demand have recently been showing some signs of picking up, with supply-side constraints starting to ease and household and business sentiment improving somewhat,” the BOJ said in a statement on Tuesday.

Contact Hisane Masaki at yiu45535@nifty.com.