15 June 2004, 12:07  BOJ Says Economy Is Recovering; Raises Assessment

Japan's economy is ``gathering strong momentum'' as rising corporate profits generate job growth, the central bank said in its monthly report, adding it was more optimistic about the outlook for the first time since April. ``Rising production and corporate profits are starting to spread to the labor market,'' Bank of Japan Governor Toshihiko Fukui told a news conference in Tokyo. The bank today dropped the word ``gradual'' from its description of a recovery for the first time since the nation's asset price bubble burst in 1991.
The report came after Fukui and his eight board colleagues kept monetary policy unchanged today. The bank left interest rates at almost zero and kept the upper limit of the target for reserves available to lenders at 35 trillion yen ($316 billion.) Ten-year government bond yields had the longest decline on record on speculation Japan's recovery might prompt the central bank to end its policy of keeping interest rates at zero and pumping money into the economy as soon as next year. The 10-year bond yield rose to 1.85 percent yesterday, the highest since October 2000. It was at 1.795 percent at 4:26 p.m. in Tokyo.
The yen rose to 110.86 to the dollar at 8:27 a.m. in London from 111.03 late yesterday in New York. The bank's report repeated that the consumer price index would continue falling slightly, although Fukui said increases in oil prices ``will eventually start to affect CPI.''
Unemployment
Profit growth is generating jobs, pushing unemployment to a three-year low of 4.7 percent in March and spurring the consumer spending that makes up more than half of the world's second- largest economy. Spending by households headed by a salaried worker had a record gain in April, jumping a seasonally adjusted 9.3 percent from March. A series of government reports last week reinforced expectations that deflation may be easing as Japan's economy expands for a ninth quarter for the first time since 1997. The government raised its estimate of first-quarter growth to a 6.1 percent annual pace from 5.6 percent because companies added to inventories in anticipation of rising demand. Machinery orders jumped 11.8 percent in April, the biggest gain in six months, a sign companies plan to increase investment, another report said. Wholesale prices rose for a third month in May, according to a Bank of Japan report last week. The 1.1 percent increase from a year earlier was the biggest since October 1997. Core consumer prices, which the bank monitors to conduct monetary policy, have only risen one month since April 1998. Fukui said last week Japan's consumer prices will keep falling moderately this year and that some distance remains before deflation ends. Japan is now ``close to the final stage of beating deflation,'' he said. The government is scheduled to release its own assessment on the economy tomorrow afternoon. //www.bloomberg.com

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