The Bank of Japan said today in a monthly report that it still believed the Japanese economy would continue recovering despite some areas of weakness, such as declines in industrial production.
'Japan's economy is expected to continue to recover,' the central bank said, leaving its growth forecast unchanged from last month.
The bank noted that industrial production is weaker as manufacturers in the information technology sector adjust inventories to avoid a glut. Japan's industrial output in October fell by a revised 1.3% from September, having fallen or remained unchanged month-on-month for three of the past five months amid slower exports growth.
'Under these circumstances, it seems that business sentiment has become cautious in some industries,' the bank said in the December report.
At the same time, the bank noted that corporate investment in factories and offices had been rising, with corporate profits improving.
Earlier this week, the bank said its quarterly Tankan survey showed business confidence at large manufacturers fell in the three months to December for the first time since the March 2003 survey. But the survey also showed an upward revision for capital expenditure at non-financial firms to 6.2% growth in the year to March 2005, from the previous estimate of 3.5%.
The bank repeated in the December report that the labour market had been improving and that household income had stopped declining, which has led to steady consumer spending.
Looking ahead, the bank remained optimistic, saying 'Exports and production are expected to follow an uptrend, as overseas economies will continue to expand and domestic demand will also continue to increase.'
On deflation, the bank said consumer prices were expected to decline slightly from year-earlier levels.
