BOJ Says Japan's Growth Is Sluggish for First Time Since 1998

By Toru Fujioka

Aug. 20 (Bloomberg) -- The Bank of Japan cut its economic assessment, saying growth in the world's second-largest economy is ``sluggish'' for the first time in 10 years.

``Japan's economic growth has been sluggish,'' the central bank said in its monthly economic report in Tokyo today, downgrading its evaluation for the second month. In July, policy makers said that the expansion was ``slowing further.''

Bank of Japan Governor Masaaki Shirakawa said yesterday that the nation's recovery may be delayed because rising oil and materials costs as well as a global slowdown are denting demand. Japan's economy contracted last quarter, putting it on the brink of its first recession in six years, and economists say the slump will prevent the bank from raising interest rates until 2009 at the earliest.

``The BOJ de facto admitted that the economy is in recession,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan Chase & Co. in Tokyo. ``The bank will not move for quite a long period.''

Today's report elaborates on a statement issued yesterday, when the central bank kept the key interest rate unchanged at 0.5 percent. The rate, the lowest among industrialized economies, hasn't been raised since it was doubled in February 2007.

The Bank of Japan cut its view of exports, production, capital investment and consumer spending in today's report.

``Growth in exports is expected to remain only modest for the time being, due to the slowdown in overseas economies,'' the bank said.

Soaring material costs and weakening sales have eroded profits, prompting companies to pare manufacturing, investment and hiring. Production, exports and household spending declined in June, and the unemployment rate climbed to the highest in almost two years.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net