BOJ’s Kamezaki Says Economy Is No Longer in Freefall

By Mayumi Otsuma

June 3 (Bloomberg) -- Bank of Japan board member Hidetoshi Kamezaki said the world’s second-largest economy is no longer in freefall and a recovery will soon take hold as production improves and stimulus plans take hold.

“Until now, the economy was sliding down a steep hill,” Kamezaki said in a speech today at a business meeting in Shizuoka, central Japan. “We can expect the economy to head for a recovery in the near future as the pace of production cuts by companies eases and stimulus measures take effect.”

Japan’s deepest postwar recession is easing as exports stabilize and manufacturers increase production to replace inventories. Kamezaki said the recovery will be mild because it will take “considerable time” before output and sales return to prior levels and the “severe” outlook for profits will curb business spending. Job prospects and incomes will deteriorate further, weakening consumption, he added.

“Japan and Asian nations are seeing big rebounds in production ahead of the rest of the world,” said Ryutaro Kono, chief economist at BNP Paribas SA in Tokyo. Still, “the revival is only being driven by inventory adjustments, and it’s not a sign that demand is beginning to surge.”

Factory output climbed 5.2 percent in April from March, the biggest increase in 56 years, as companies replaced stockpiles they managed to run down during the worst of the export collapse. Production is still only about two-thirds of last year’s levels.

Konica Minolta

Konica Minolta Holdings Inc., a maker of film used in liquid-crystal displays, said yesterday that it will eliminate jobs and reduce spending on research to help save 33 billion yen ($345 million) in costs this year. Japan’s unemployment rate climbed to a five-year high of 5 percent in April and household spending slid for a record 14th month.

Central bank Governor Masaaki Shirakawa said last week spending by companies and consumers will remain “severe” even as the economy resumes growing this quarter. Japan’s recovery “will inevitably be mild and attended by high uncertainty,” he said.

Gross domestic product shrank at an unprecedented 15.2 percent annual pace in the first three months of 2009.

Weakening domestic spending has increased concern that deflation will return to haunt the world’s second-largest economy.

The output gap, a measure the difference between supply and demand, almost doubled to a record last quarter, the Cabinet Office said this week. Consumer prices excluding fresh food dropped for a second month in April and wages slumped for an 11th month.

Kamezaki, 66, joined the central bank’s policy board in April 2007 from trading company Mitsubishi Corp.

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