Global growth slowing but recovery intact: BoJ

Bank of Japan Governor Masaaki Shirakawa said the world economy continues to recover albeit at a slower pace, taking a slightly more cautious view on global growth as signs of a slowdown spread to emerging economies. But he maintained the central bank's view that while Japan's economy remains under downward pressure, mainly on output, there are indications it is picking up.
In a sign that the recovery is broadening, the BoJ also raised its assessment for seven out of nine regional economies, with most areas showing a pickup in output and household spending. "Japan's economy will likely resume a moderate recovery as supply constraints ease further and output activity picks up," Shirakawa said in a speech to a quarterly meeting of BoJ branch managers on Monday.
The BoJ is growing increasingly confident that Japan's economy will recover from the devastation of the March 11 earthquake and tsunami by the end of this year as companies restore supply chains more quickly than expected. Factory output in May jumped by the most in almost 60 years, while the central bank's latest quarterly tankan survey showed that companies expect an improvement in business sentiment in coming months and plan to increase capital expenditure.
The BoJ is therefore expected to hold off on easing policy further at its rate review next week and to tone up its optimism on output and the economy, although it will strike a note of caution about signs of a global slowdown. Some in the BoJ have become increasingly worried about softening global growth which, if prolonged, will hurt exports just when Japan is shaking off supply constraints in the autumn.
Shirakawa's acknowledgement of the global slowdown follows a warning by BoJ board member Yoshihisa Morimoto last month that global economic risks have heightened somewhat after a slew of weak US data. The BoJ raised its assessment for seven out of nine regional economies - including the north-east region hardest hit by the March 11 earthquake - in a report issued after the branch managers' meeting, citing easing supply constraints and improving household sentiment.
That was a sea change from the previous report in April, when the BoJ cut its assessment for most economies and warned of the widening damage from the March disaster. Most regions saw production increase or pick up, while household spending improved in all regions as sentiment recovered from the post-quake slump, the July report said. Auto output in the Tokai region of central Japan, where Toyota Motor Corp is based, will return to pre-quake levels by September and continue to increase from October onward, said Nagoya branch manager Shigeki Kushida.