As these headwinds are likely to stay for some while, Japan’s economy seems to slow for the time being, Governor Shirakawa said. Uncertainties in financial markets are still substantial.
In light of the persistent tensions in financial markets and slowing growth in the advanced economies, we need to keep a close watch on how the negative feedback loop between financial markets, asset prices and the real economy will play out going forward, Masaaki Shirakawa, Governor of the Bank of Japan said. Uncertainties surrounding this adverse dynamics are still substantial.
“As these headwinds are likely to stay for some while, Japan’s economy seems to slow for the time being”, the Governor said. “With regard to the baseline scenario for the next one to two years, however, I am of the view that Japan’s economy will grow near potential”, he said outlining that Japan’s growth rate will pick up again to reach 1.5 percent in 2008 and somewhat higher in 2009.
“The prime reason for this relative stability of Japan’s markets is that Japan’s financial firms have smaller exposures to structured credit markets than their foreign competitors”, he outlined. “In addition, I believe the flexible framework of our money market operations has contributed to preserving the stability of short-term funding market.”
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