TOKYO: 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 automobiles 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 BoJ said in a monthly economic report for August released on Monday.
"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.
The report said exports will 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 will "recovery moderately."
The BoJ 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 published the following market day.
On Friday, the BOJ maintained its view that the economy continues to recover moderately but revised down its assessment on exports to say they were "weakening." The summary out that day did not offer a detailed assessment on the outlook for exports, nor an explanation on why underlying exports have been weak.
On household spending, Monday's report said it has held firm as the effect of a sales tax hike in April began to subside.
But the BoJ acknowledged that some sectors were suffering from the tax hike pain 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 pick-up varies depending on items and regions," it said.
Data on Wednesday 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 hike and disappointing factory output, a Reuters 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 hike in the sales tax in 2015.
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