Bank of Japan Governor Masaaki Shirakawa said Monday the sharp deterioration in the global economy is starting to level out, but severe conditions are likely to continue for the time being and the recovery is likely to be only mild.
In a speech to local business leaders in Kanazawa, Ishikawa Prefecture, Shirakawa said the Japanese economy is likely to recover moderately from the latter half of fiscal 2009 on the back of the global recovery, noting recent signs of improvement in export and production due partly to demand recovery in China.
But caution on downside risks to the domestic economy would remain necessary as domestic demand, or spending by companies and consumers, is being adversely affected with a lag by a steep decline in production, he said.
“The sharp deterioration in economic and financial conditions in Japan and abroad since last autumn is starting to level out and there is the prospect of a mild recovery ahead,” Shirakawa said.
However, adjustments of various excesses that had accumulated worldwide over the past several years could take “considerable time,” he said, adding, “It is very likely that the severe economic conditions will continue for some time.”
“The recovery therefore will inevitably be mild and accompanied by high uncertainty,” Shirakawa said.
The future path of the economy after recovering from the recent shocks will reflect the “true strength” inherent in the economy, or the potential growth rate that is largely determined by growth in productivity, he said.
“Japan’s economy cannot be expected to prosper without improving its productivity through innovation,” Shirakawa said, adding the government and central bankers’ fiscal and monetary policies merely assume a role of supporters.
As for the state of the overseas economy, Shirakawa said there is progress toward reducing excesses in consumption and debt, referring to gradual adjustments in the U.S. and European housing markets and the fact that the savings rate of households in the United States has recently started rising.
But he indicated it may be too early to anticipate a full-fledged recovery in the foreseeable future.
“It seems that more time and efforts are necessary to see progress in the restructuring of the financial system to the extent that one can conclude that the risk of adverse feedback loop between financial and economic activity has receded,” he said.
Source: Associated Press.
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