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2011-11-16 07:40:51
16 November 2011 Last updated at 05:39 GMT
The Bank of Japan (BOJ) has warned that the country's economic growth may be
hurt by the eurozone debt crisis, flooding in Thailand and a strong yen.
It said the euro crisis was stifling demand from Europe, while disruption to
supply chains due to the Thai floods was affecting Japanese manufacturing.
The warning comes just days after Japan reported that its economy grew by 1.5%
in the third quarter.
The BOJ left its key interest unchanged between zero and 0.1% to boost growth.
"Japan's economy continues to pick up but at a more moderate pace, mainly due
to the effects of a slowdown in overseas economies," the central bank said in a
statement.
Recovery bump
Start Quote
By downgrading its economic assessment, the BOJ indicated its vigilance to
risks regarding overseas economies
Yuichi Kodama Meiji Yasuda Life Insurance
Japan's economy has been trying to recover from the aftermath of the earthquake
and tsunami that caused widespread damage earlier this year.
Its expansion in the July to September period came after three quarters of
contraction.
However there are concerns that its recovery may be derailed in wake of global
economic developments.
The fear is that the ongoing debt crisis in the eurozone may hurt consumer
demand in the region and dent demand for Japanese goods. That is likely to have
a big impact on growth in Japan's export-dependent economy.
At the same time, many Japanese manufacturers including carmakers Toyota and
Honda have had to cut their global output due to supply chain disruptions
caused by floods in Thailand.
Analysts said these factors were weighing heavily on the central bank's
predictions despite a recent recovery in economic growth.
"By downgrading its economic assessment, the BOJ indicated its vigilance to
risks regarding overseas economies, chiefly uncertainty over Europe's debt
crisis and the effect of Thai floods," said Yuichi Kodama of Meiji Yasuda Life
Insurance in Tokyo.
Yen trouble
To make matters worse, the Japanese currency has maintained its strength
against the US dollar. It was trading close to 76.97 yen against the US dollar
in Asian trade on Wednesday.
A strong currency does not bode well for Japanese exporters as it makes their
goods more expensive to foreign buyers and also hurts their earnings when they
repatriate profits from abroad.
Japanese authorities have intervened in the currency markets this year and also
introduced other policy measures in a bid to weaken the yen.
Analysts said the central bank may take further action if there are big moves
in the yen's value.
"It's hard to predict the timing of the next action as it solely depends on
currency moves," Mr Kodama said.
"But the BOJ may ease early next year when the effects of last month's currency
intervention and monetary easing will fade," he added.