HIGHLIGHTS 3-BOJ Shirakawa sees positive surprises for economy

Tue Jun 14, 2011 5:17am EDT

(Adds comments)

TOKYO, June 14 (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Tuesday he sees some positive surprises for Japan's economy in the short term, such as the steady progress manufacturers are making in restoring supply chains after the March 11 earthquake.

But he added that he saw negative factors that could affect the country's economy in the long term, such as the risk of power shortages weighing on output.

Following are key quotes from Shirakawa's news conference:

JAPAN ECONOMY

"Right after the earthquake, supply chain disruptions and power supply posed severe problems even though we expected the economy to recover once these were resolved ... Many business people held very cautious views ... but the BOJ was not so pessimistic about the macroeconomic situation.

"We were thinking somewhat brightly when we issued our outlook report, but compared with our forecast, we have seen positive surprises in the past month. There have been positive surprises in the near term, but sources of concern are emerging when looking at the medium to long term."

"Output activity is overshooting the forecasts we made in the April outlook report."

GLOBAL ECONOMY

"The U.S. economy is likely to see a recovery in its pace of growth again, helped by its easier monetary environment. But uncertainties remain in crude fuel price movements, and the pressure to for the U.S. to adjust its balance sheet will continue to have an impact, so I want to pay attention to downside risks.

"Emerging economies will likely sustain their strong growth as a trend."

"Growth (in emerging economies) has continued at a fast pace up until now. In order to make this lasting, it is necessary to avoid overheating of the economies and rises in inflation. I believe it is rather desirable for growth to slow down somewhat."

"On the speed of (Japan's economic) recovery ... the key issue is what the pace of recovery will be after supply constraints have been resolved."

"The biggest factor would be the pace of expansion in the global economy."

"We do not expect a big drop in the global economic growth rate. A high growth rate will basically continue."

RECONSTRUCTION

"It will likely be some time before reconstruction-related fund demand climbs in earnest. When this happens, the BOJ will consider its response while taking into account how such fund demand has come about and how private financial institutions and the government are dealing with it.

"It is desirable that reconstruction leads to stronger economic growth. But when considering concrete steps, the BOJ will look at from the viewpoint of what scheme can be devised as a framework for supporting reconstruction, rather than looking at fund supply to strengthen the foundations for economic growth to cover reconstruction."

POWER SUPPLY

"On the issue of Kansai Electric (asking customers to cut power use by 15 percent during peak hours this summer), I believe that relevant parties are putting in place various efforts so there will not be a large impact on economic activities and public livelihoods ...

"Electricity plays a big role in economic and output activity. If electricity cannot be supplied sufficiently in the mid- to long-term, then this would have a very big impact on the Japanese economy. If this is the case, then there would be revisions in areas such as the costs of manufacturing in Japan, especially among manufacturers, and on investment in Japan ...

"There is a risk (that this could) decrease the potential growth rate of Japan's economy as well as the level of its economic activity.

"Tepco (Tokyo Electric Power ) and Tohoku Electric have asked for 15 percent electricity conservation. But firms have taken various countermeasures and as a result, the possibility of 15 percent conservation greatly limiting output activities has been declining quite a bit.

"Compared to when the last meeting took place, the situation (expected in) the short term -- from the summer to the autumn --has somewhat improved.

"On the issue of power shortages in the long run ... This is currently recognised as a risk factor. We need to be aware of such problems as we think about the economy." (Reporting by Leika Kihara, Rie Ishiguro, Tetsushi Kajimoto and Yoko Kubota; Editing by Joseph Radford and Edwina Gibbs)

FILED UNDER: