Reply #9: BOJ to paint darker picture on brink of recession

[Ghost Dog]

Sun Aug 17, 2008 8:44pm EDT

TOKYO, Aug 14 (Reuters) - The Bank of Japan will probably downgrade its view of the economy and keep rates on hold next week in a signal that crumbling export markets can no longer offer factories enough business to keep Japan out of recession.

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The economy suffered its biggest contraction in seven years in the second quarter, while exports to emerging markets in Asia weakened after sustaining growth in the face of a slump in U.S. and European demand.

"Up until July, the BOJ has said that while domestic demand was weak, solid external demand would keep production afloat," said Masaaki Kanno, chief economist at JPMorgan Securities.

"But it has now become clear that exports, the last hope for Japan's economy, cannot be relied upon."

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The annualised rate of contraction of 2.4 percent in Japan's economy is a contrast to the 1.9 percent growth in the same quarter in the United States. Analysts expect the euro-zone economy to have contracted slightly during the quarter.

Japanese industrial output has fallen for two straight quarters and is highly likely to fall further in the third quarter. In the last half century, two quarters of contracting factory output have always pushed the Japanese economy into recession as defined by the government.

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The government has acknowledged that Japan is either heading into a recession or is already there, ending a growth cycle that began in early 2002 and was the longest in six decades.

But many economists expect any recession to be a shallow one as companies are now more resistant to external shocks, having recovered from the so-called triple excesses of the bubble era in the late 1980s -- excess production capacity, heavy debt loads and bloated payrolls.

/... http://www.reuters.com/article/marketsNews/idINT12341620080818?rpc=44&sp=true