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Monday, 21 May, 2001, 11:55 GMT 12:55 UK
Bank of Japan: Worse to come
Panasonic DVD player
Consumer spending is proving hard to stimulate
The Japanese economy is likely to suffer further setbacks before it improves, the Bank of Japan (BoJ) has said.

In its latest monthly report, the bank said industrial production was declining sharply, reflecting weaker world demand for Japanese products and an excess of stocks held by Japanese companies.

The central bank lowered its expectations again for a wide range of economic indicators, including capital spending, industrial output, corporate profits and household incomes.

Analysts said weaker exports and lower corporate profits and household incomes would lessen the chances of Japan achieving the rise in consumer spending that the BoJ hopes will revive the economy.

Stubbornly depressed

Traditionally the biggest part of the economy, consumer spending has stayed stubbornly depressed in recent months, with deflation helping to keep shoppers at home.

Although it is one of the BoJ's key objectives, economists said it might take at least two years to reverse falling consumer prices.

Earlier this month, the Japanese government downgraded its assessment of the economy, blaming the global economic slowdown.

Trade figures published on Monday added to economist concerns.

The data revealed a sharp shrinking of Japan's trade surplus in April, as exports fell in value for the first time in 18 months.

Reduced car shipments

The trade surplus was down 42% for the month year-on-year to 665.9bn yen ($5.4bn; 3.8bn).

Exports were 1% lower, due to reduced car and semiconductor shipments, while imports climbed 13%, helped by greater crude oil, semiconductor and clothing purchases.

With the US - one of Japan's major trading partners - experiencing a sharp economic slowdown, economists did not expect any swift turnaround in the trade balance.

"The drop [in the trade surplus] was bigger than expected. I think a falling trend in exports... will continue for a while," said Kazuhiko Ogata, senior economist at HSBC Securities in Tokyo.

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