Japan Says Economy `Weakening,' Keeps View Unchanged

By Toru Fujioka

Sept. 19 (Bloomberg) -- Japan's government said the world's second-largest economy is ``weakening,'' language it introduced last month for the first time since the country was in a recession seven years ago.

``The economy has been weakening recently,'' the Cabinet Office said in a statement in Tokyo today. The government cut its assessment of capital spending and imports and said it's watching how global financial-market turmoil might affect Japan.

The economy's longest postwar expansion may be over as rising commodity costs discourage spending at home and the world slowdown reduces demand for exports. The Bank of Japan and central banks in North America and Europe yesterday agreed to pump $180 billion into the global financial system to revive confidence in markets battered by the U.S. banking crisis.

``This uncertainty in financial markets will naturally have an impact on the Japanese economy, which depends on foreign demand,'' Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo. ``The economy will remain weak for a while.''

The Bank of Japan agreed to swap currencies with the Federal Reserve, supplying dollars for the first time after the cost of borrowing in the currency soared to a seven-year high following Lehman Brothers Holdings Inc.'s bankruptcy and the U.S. government's takeover of American International Group Inc.

Central bank Governor Masaaki Shirakawa today said there's no end in sight to the market tumult, even as global shares rallied after the U.S. government said it's planning new laws to halt the credit-market meltdown. Shirakawa this week said risks for Japan's economy have intensified since the crisis deepened.

``Attention should be given to further downside risks that stem from growing financial uncertainty in the U.S. and movement of the stock and foreign-exchange markets,'' the government said in today's report.

The Cabinet Office removed the word ``recovery'' from its evaluation of the global economy for the first time since June 2002 and downgraded its view of Europe.

Last month was the first time since May 2001 that the government described Japan's economy as weakening.

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