BOJ Says Economy Deteriorated in All Nine Regions

By Mayumi Otsuma

Jan. 16 (Bloomberg) -- Japan’s economy weakened in all of the country’s nine regions over the past quarter as slumping exports prompted companies to cut production and fire workers, the central bank said.

The regional economy has been “deteriorating,” the Bank of Japan said after cutting its assessment in all areas for a second quarter, according to the report released in Tokyo today.

Japan’s recession intensified since the previous report in October as exports, factory output and machinery orders fell at a record pace. The slump was most pronounced in Tokai, home to Toyota Motor Corp., which is closing factories and eliminating jobs as consumers at home and abroad stop buying cars.

“Japan’s economy has slipped into a vicious circle” of slower output and job losses leading to weaker consumption and further production cutbacks, said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo.

The bank lowered the regional assessment “reflecting the fact that private consumption had weakened as the employment and income situation became increasingly severe and also that production had decreased substantially,” the report said.

Bank of Japan board members will probably say next week the economy will contract and consumer prices will resume falling in the year starting April 2009, economists say. Governor Masaaki Shirakawa told the regional managers that companies are struggling to raise funds as markets deteriorate, adding to speculation the bank will start buying corporate bonds.

Toyota Predicts Loss

Toyota forecasts its first operating loss in seven decades for the year ending March and will close its 12 domestic factories for 11 days this quarter as global sales plummet.

“Tokai reported that the level of economic activity had been declining rapidly” because exports, its main driver of growth, have fallen sharply, the bank said. Confidence among the region’s manufacturers fell to the lowest in the nation in December, a reversal from the highest nine months earlier.

The central bank said production is “declining substantially” in the Kinki region, which encompasses Osaka, Japan’s second-largest metropolitan area and a base for electronics manufacturers including Panasonic Corp. and Sharp Corp. The global slowdown is weakening exports from the area, said Masahiro Samejima, manager of the bank’s Osaka branch.

“Not only the U.S. and Europe but also emerging economies are slowing considerably, hurting demand for electronics and electronic parts,” Samejima told reporters.

Sanyo Electric Co., the Osaka-based maker of rechargeable batteries, yesterday lowered its annual profit forecast to zero and said it will cut 1,200 jobs.

“Japan’s jobless rate, which has been pretty subdued up to now, will soar to 5 percent this year because companies are losing endurance and having no other choice but to cut jobs,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. The unemployment rate rose to 3.9 percent in November.

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