The Bank of Japan downgraded its assessment of the Japanese economy today for the first time in nearly a year, citing the effect of a weak US economyon Japan's exports and industrial production.
"Japan's economy has stabilised as a whole, but there isgreater uncertainty towards recovery," the central bank said inits monthly report.
The new assessment comes a week after economic growth figuresshowed the pace of Japan's recovery slowing in July-September onthe back of faltering exports to a stagnant world economy.
It also follows a report yesterday by the Organisation forEconomic Cooperation and Development (OECD) which said thatJapan's economy, the world's second largest, would probablyshrink or show zero growth in 2002 and that growth would remainslow in the following two years.
The central bank said it no longer thinks that exports, thekey driver of Japan's economy, will pick up in the new year.Recent weak economic data from the United States and tension overIraq have left many Japanese companies forecasting little changein their business outlook.
With export growth and domestic output flattening as aresult, there is no clear sign of recovery, the BOJ said.
"The BOJ highlighted the risks going forward," said Mr ShujiShirota, an economist at Dresdner Kleinwort Wasserstein.
"By saying it would more closely watch the impact of stockprice falls and such on the financial system, it seems toindicate that it will take measures, albeit in an indirect way,to help stabilise the banking system," Mr Shirota said.