Bank of Japan Says Economy Worsened in Eight of Nine Regions

By Mayumi Otsuma

July 7 (Bloomberg) -- The Bank of Japan said the economy has worsened in eight of the country's nine regions since April as costlier energy and raw materials slowed the expansion.

``Growth of the economy as a whole continued slowing recently, mainly due to the effects of high energy and material prices, although there were some regional differences,'' the central bank said in a quarterly report today. The central bank lowered its assessment of consumer spending in all nine regions.

Bank of Japan Governor Masaaki Shirakawa and his colleagues will consider the evaluations when they assess the overall economy and set interest-rate policy at a meeting ending July 15. Shirakawa said today that Japan will keep expanding, playing down concern that the country is headed for its first recession since 2001.

The policy board may say next week that the economy is slowing more than it had expected in April, when it forecast economic growth of 1.5 percent for the year ending March 2009.

``Governor Shirakawa probably wants to know how inflationary expectations of consumers and businesses in the regions are developing, and how companies are setting prices,'' said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute and a former Bank of Japan official. ``The bank wants to get first-hand voices from branches nationwide.''

Shirakawa said economic growth ``will probably keep decelerating for the time being, but return to a moderate expansionary path thereafter.''

Capital investment and export growth are slowing and profits are decreasing because of rising commodity costs, the governor said. Global inflation is accelerating, financial markets remain volatile and the U.S. economic outlook is ``uncertain,'' he said.

Tohoku in northern Japan was the only region that didn't have its economic assessment cut, the central bank said.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net