Japan central bank slashes economic outlook on crisis

The twin disasters destroyed scores of factories in northern Japan, crippling supply chains and causing severe shortages of goods ranging from auto components to dairy products.

The central bank warned of a slump in Japanese exports and stagnant demand, giving a bleak forecast for the world's No. 3 economy, which had been on the course to recovery before the March 11 quake.

“Japan's economy is under strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster,” the bank said, adding that the outlook would remain as such “for the time being.”

Just one month before the earthquake, the central bank said the Japanese economy was emerging from a deceleration phase with growth experienced in exports and production.

Then came the March 11 earthquake — the worst ever in Japanese history. It spawned a tsunami that slammed into the northeastern coast with such force that it all but wiped out the region, killing as many as 25,000 people. It also upended Tokyo Electric Power Co.'s nuclear power plant in Fukushima, causing a dangerous radiation leak that seeped into Tokyo's tap water and the Pacific Ocean and took weeks to control.

Hiroshi Watanabe, economist at the private think tank Daiwa Institute of Research, said the tsunami disaster and ensuing nuclear crisis completely changed Japan's export-led recovery scenario.

“With so much destruction and disruptions in production and supply, we cannot foresee a recovery pattern,” he said. “The government has yet to grasp the whole picture of the economic toll from the twin disasters and the nuclear crisis.”

Since the March earthquake, the central bank has pumped over 80 trillion yen (US$937 billion) into the financial system to stabilize the post-quake economy.

The bank also announced Thursday it would set up a program worth 1 trillion yen to offer cheap loans to financial institutions in the regions affected by the disasters.

In a widely expected decision, the central bank's nine-member policy board voted unanimously to keep the overnight call rate target at zero to 0.1 percent. It has maintained the interest rate in the range of zero to 0.1 percent since October in a bid to spur growth in Japan's sluggish economy.

Watanabe said post-quake restoration would cost Japan at least 10 trillion yen. Local reports have said the government will compile an extra budget worth 5 trillion yen as early as next week to support reconstruction efforts.

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