Tokyo, April 16 (Bloomberg) -- The Bank of Japan cut its outlook for the economy fora second month, saying the slowdown in industrial production has become morepronounced as exports decline. That's causing manufacturers to lose confidence, the central bank said. Stocks andthe yen fell on the worsening economic outlook and bond yields rose on concern thegovernment may spend more money to shore up growth. ``Net exports are falling rapidly, reflecting a sharp slowdown in overseaseconomies,'' the bank said in its monthly report. ``Mainly due to thesedevelopments, industrial production is declining more sharply.'' Last month, the banksaid production was starting to decline. The central bank's downgrade of the economic outlook follows a similar move by thegovernment, which on Friday gave its gloomiest verdict in more than five years,saying the economy was weakening. The BOJ stopped short of that, conceding onlythat the country was going through an ``adjustment'' that would last for some time. ``Though deliberately nebulous, the wording appears to emphasize a downgrade ofthe current strength of economic growth as well as its near-term prospects,'' saidJames Malcolm, an economist at J.P. Morgan Securities Asia Ltd. The yen fell, to recently be trading at 124.64 to the dollar, from 124.19 on Friday.The benchmark Nikkei 225 stock index dropped 1 percent to 13,254.89. Ten-yearbond yields rose 3.5 basis points to 1.455 percent, the highest in almost twomonths. ``It's obvious the economy is in deep trouble,'' said Takayuki Togawa, a foreignexchange manager at Tokai Bank Ltd., who expects the yen to fall as low as 126 tothe dollar this week.
Spending Falls
In other signs the economy remains in the doldrums, department store sales inTokyo fell for a third month in March, an industry report showed. Spending dropped0.6 percent last month from a year earlier. And three convenience store chains, led by FamilyMart Co., said earnings fell in thefiscal year ended Feb. 28 as spending slows. The BOJ had been expected to downgrade its assessment of the economy after itsquarterly Tankan survey showed business confidence fall in the first quarter for thefirst time in more than two years. The central bank last month decided to inject more money into the banking systemby raising its target for banks' current account deposits it holds to 5 trillion yen ($40billion) from 4 trillion yen, and guide its key lending rate to zero. A reserve target willbe raised if needed, BOJ policy makers said. The policy, which is intended to increase the supply of money to the economy, willstay in place until consumer prices, excluding fresh food, stop falling from year-agolevels, the BOJ said. That could be at least two to three years away, analysts say.Prices fell 0.6 percent in February.
Policy Changes
The bank's board decided Friday to leave policy unchanged, in its first unanimousvote in almost three years. The central bank has left open the possibility of pumping more money into theeconomy by increasing the amount of government bonds it buys each month frominvestors or raising the target for the reserves it holds. ``As economic conditions deteriorate, it is possible the BOJ could raise the newquantitative target of current account bank balances from 5 trillion yen to about 7trillion yen,'' said Vincent Musumeci, an economist at ABN Amro Securities JapanLtd. The bank today repeated its concern weak demand continue to create pressure forlower prices. ``Prices will be weak for the time being,'' the BOJ said. It had previouslyqualified that view by saying prices would be ``somewhat weak.'' The BOJ repeated last month's view that exports are falling rapidly and the pace ofprofit growth is slowing significantly. Exports will continue to drop and businessinvestment will gradually reach a peak, the report said. The BOJ forecast the main measure of money supply -- M2 plus certificates ofdeposit -- will grow 2 percent in the three months ended June 30, after expanding 2.6percent in the first quarter. Bank of Japan Governor Masaru Hayami will hold his monthly press conference at 2p.m., Japan time, tomorrow.