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Downgrade for japanese economy

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Downgrade for Japanese economy
The Bank of Japan has downgraded its view of the country's economy, blaming the spread of the Sars virus and a weak dollar.

The central bank governor Toshihiko Fukui also warned that Japan could suffer a financial crisis "at any time" unless its shaky banking sector is sorted.

The downgrade is the first in six months. It follows a more optimistic report last month that had suggested some improvements.

But the bank said on Wednesday that a slowdown in overseas economies and the spread of Sars in East Asia could now dampen Japan's growth prospects.

The report also pointed to the government's cash injection for Japan's fifth-largest bank, Resona Holdings, earlier this week.

The bailout, providing funds to keep the bank in business, has caused jitters in Japan's financial markets.

Uncertainties ahead

The report suggested consumer spending remained weak, public investments were down and that a recovery in overseas markets was needed to boost exports.

"There is a greater uncertainty about the effects of Sars within the East Asian region, whose economies are closely linked to Japan's, as well as uncertainties regarding the recovery in the US and European economies and developments in the US dollar."

Although no Sars cases have been found in Japan, a slowdown in Asia as a whole is expected to hurt Japanese exports and businesses with overseas operations.

The Japanese electronics giant Matsushita Electrical Industrial, which makes Panasonic products, said this week it was closing two factories in China after several workers were found to have Sars.

Watching the markets

The Bank of Japan's monthly report follows a decision by its policy board on Tuesday to raise the amount of excess cash in the financial system by 3 trillion yen ($26bn) to try and calm the markets.

The Bank said that after easing credit, financial markets needed to be watched.

"We must carefully monitor how developments in the financial system will affect stock prices, corporate finance and the economy," said the report.

A recent rise in the yen against the dollar has prompted suggestions from dealers that the finance ministry has intervened in currency markets.

A strong yen could hurt the competitiveness of Japanese exports, which have been a key part of the country's push for economic recovery.

Story from BBC NEWS:

Published: 2003/05/21 07:07:12 GMT


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