Japanese outlook poor

Demand for Japanese goods continues to fall

The Bank of Japan downgraded its outlook for the world's second largest economy for a third consecutive month on Wednesday, saying spending and household incomes were falling.

"Adjustments in economic activity are intensifying further, reflecting a substantial decline in exports and production," it said in its August monthly report.

The future will not be much better, with the Bank reporting a continued period of economic adjustment in line with the slowdown in the global economy.

The report comes after the central bank's surprise decision on Tuesday to loosen further its already very loose monetary policy, to try and pull Japan from the edge of recession and ease the pain of planned structural reforms.

Economic slowdown

The Bank reported that exports were falling due "not only to a slowdown in overseas economies but also to sluggish demand for IT-related goods."

Corporate profits and business sentiment "are also worsening particularly in the manufacturing sector", it warned.

The slowdown in corporate activity is having a strong impact on household spending which remained "flat on the whole."

The bank however said there may be some relief later in the year from an expected pick-up in overseas economies, especially the US.

"There still exist such general views that around the end of this year, ongoing inventory adjustments in IT-related goods worldwide are likely to peak out and overseas economies, particularly the US, will start to recover," it said.