Tags: Japan | Government | Economy | Standstill

Japan Government Says Economy at Standstill

Tuesday, 19 Oct 2010 07:39 AM

Japan's government said on Tuesday that the economy was now at a standstill, highlighting the growing gulf between developed and emerging countries at the heart of global currency tensions.

In a monthly report, the government downgraded its assessment of the economy for the first time since February 2009. A senior Japanese official said further pressure on the economy, which is mired in stubborn deflation, could tip it into recession.

"If the economy turns out as expected in our main scenario, we may end up describing the current situation as a soft patch," said the official at the Cabinet Office, which compiled the report.

"But if it comes under further downward pressure, it could end up slipping into recession," he said.

Faltering recoveries from the global financial crisis in developed economies have pushed global investors into emerging markets in search of higher returns, driving up their currencies.

The move has been exacerbated by widespread expectations that the U.S. Federal Reserve will print billions of dollars to try to lift the U.S. economy, sparking concerns that the extra liquidity will find its way into emerging markets.

The currency tensions will dominate a Group of 20 finance ministers' meeting in South Korea starting on Friday and a G-20 summit in November, as officials look to tackle the economic imbalances and the threat of competitive currency devaluation.

"Currencies will be the topic that many people will be talking about ... at the G-20. I hope that good ideas will be put forward there and we will explain the present situation in Japan," Finance Minister Yoshihiko Noda said.

Japan's policymakers have grown increasingly concerned by a slowdown in growth in the export-reliant economy, prompting the government to draw up a supplementary budget and the central bank to offer cheap loans and to promise to buy assets.

A rise in the yen to a 15-year high against the dollar added to these woes, sparking the first currency intervention by Japan in six years.

YEN'S RISE HURTS

The latest assessment by the government was the first time since July 2008 — just before the onset of the last global recession — that it had described the economic situation as at a standstill.

It said the economy could be depressed by a slowdown in the global economy and swings in share prices and foreign exchange rates as a rising yen threatens exports.

"Economic movements appear to be pausing recently," the report said, while repeating that the economy was in a mild deflationary phase.

Previously, it had said the situation was becoming increasingly severe although the economy was recovering, with some movement seen toward a self-sustaining recovery.

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Japan's government said on Tuesday that the economy was now at a standstill, highlighting the growing gulf between developed and emerging countries at the heart of global currency tensions. In a monthly report, the government downgraded its assessment of the economy for...
Japan,Government,Economy,Standstill
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2010-39-19
Tuesday, 19 Oct 2010 07:39 AM
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