TOKYO (AFX-ASIA) - Bank of Japan governor Masaru Hayami said the Japanese economy is expected to continue its sluggish tone for the time being, adding that downward pressure on prices will continue.
"The recovery in Japan's economy has been pausing, reflecting a decrease in exports," Hayami said in a opening speech at a quarterly branch managers' meeting.
"Looking ahead, the possibility is high that the economy will likely remain stagnant for sometime."
Hayami also said that as the future economic developments become uncertain, "possibilities that weak demand will intensify downward pressures on prices warrant careful monitoring."
Hayami also asked financial institutions to step up their efforts in disposing non-performing loans.
Hayami said that to make best use of the latest monetary easing and to achieve sustainable growth in Japan, "progress in structural reforms... namely resolution of the bad debt problem, is indispensable."
The BoJ governor said that while financial institutions managed to strengthen their financial standing due to their own efforts and public fund injections, "many challenges remain unaddressed" before the full resolution of the bad debt problem.
Hayami said banks' financial profiles, particularly those of large banks, remain fragile in the face of share price fluctuations.
Hayami said he rates highly the economic stimulus package released by the government last Friday, especially the various measures to support structural reforms.