Japan economy to face severe situation for time being

Bank of Japan Governor Masaaki Shirakawa said Monday that the Japanese economy is likely to continue to face a "severe" situation especially in terms of exports amid the slowdown in overseas economies and the yen''s rapid rise, seen as a spillover from the eurozone debt problem. Speaking in Nagoya, one of Japan''s biggest export bases with the presence of such major firms as Toyota Motor Corp., Shirakawa also stressed that "due attention" needs to be paid to the risk that the yen''s rise will dampen the country''s future growth through factors such as a decline in exports and corporate profits, Japan''s News Agency (Kyodo) reported. "As the aftershocks of the collapse of Lehman Brothers and the impact of the sovereign debt problems in Europe have persisted, the yen has stayed at a higher level...given this development, firms are returning to the strategy of shifting production overseas," he said. "If the pace of this shift increases excessively, it may be difficult to create replacement job opportunities at home at a similar pace," he added. A strong yen is a concern for many Japanese exporters, a key driving force for the country''s economy, as it erodes the value of their earnings when repatriated as well as their global competitiveness. The yen has been pushed higher amid investors'' preference for the perceived safety of the currency. But Shirakawa said that the yen''s strength also has advantages, including lower import costs for energy and materials, and that it is important to consider how to make use of such benefits to promote the development of new businesses and reform the industrial structure. As for the eurozone debt problem, which he called the "most significant risk factor" for Japan''s economic outlook, Shirakawa said European financial institutions have had difficulties raising funds from the market and that such developments in Europe have been affecting economies in other regions around the world. "Japan''s economy is likely to continue to face a severe situation for the time being...The bank is determined to support Japan''s economy as it seeks to return to a sustainable growth path, by continuing to pursue powerful monetary easing," the central bank governor said.