TOKYO, July 17 - Japan's central bank governor said on Thursday he sees the economy on track for recovery later this year, with many uncertainties that clouded the picture receding. "Many of the uncertain factors such as the Iraq situation and SARS are receding," Toshihiko Fukui told a news conference. "Our basic scenario, of a pickup later this year, remains unchanged." In its monthly report on Wednesday the BOJ had given a slightly more optimistic view of Japan's economy -- the first upgrade in a year and a further sign that things may be slowly starting to improve after years of stagnation.
The report said economic activity remained flat, but it dropped a key phrase used the previous month that had talked about weakness in exports, with the change in wording effectively meaning an upgrade in its view. But the report said although corporate profits were improving the pace was mild, and the rate of increase in capital investment by businesses was likely to remain modest. A string of good news recently has brightened the mood in the world's second-largest economy, with indicators showing a pickup in business investment and share prices surging almost 30 percent in 10 weeks, after hitting 20-year lows.
Upbeat comments on the U.S. economy by Federal Reserve Chairman Alan Greenspan on Tuesday have added to the cheer, raising hopes that Japan's exports will resume their role as one of the main drivers of growth. Fukui added a note of caution however, saying the restructuring of debt and work forces by companies would hold down the pace of the recovery. He also said that while long-term interest rates were settling down, financial institutions should guard against risks of the rates rising steadily in the future. Recent surges in rates triggered by a sell-off in Japanese government bonds have raised concerns that companies' financing costs could increase just as they are starting to invest in their businesses again, and that banks could face losses on bond holdings just as they are recovering from a tumble in the value of their shareholdings.
"We are concerned about when rates rise on expectations for a solid economic recovery," Fukui said. "In that sense, financial institutions need to take risk management measures to guard against such risks in the future."//