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Japanese Central Bank Moves to Boost Economy - 2003-05-02

In a surprise move, Japan's central bank has decided to inject more money into the country's economy. The action is seen as a response to the continued fall in share prices. Also this week, major electronics companies reported mixed earnings for the last fiscal year.

The Bank of Japan unexpectedly eased its monetary policy amid concern that low share prices could hurt the financial system. The decision to add cash to the system came shortly after the release of economic data showing that industrial output fell slightly in March.

The central bank raised its target for the reserves it makes available to lenders to a maximum of $225 billion, from the previous ceiling of $184 billion.

BOJ governor Toshihiko Fukui says stock prices, especially bank shares, remain weak and volatile. He says he will be paying close attention to share prices to make sure they do not damage the financial markets and hamper economic activity.

Stock prices this week hit a new 20-year low. Japanese banks hold large share portfolios, and the plunge in prices is hurting their balance sheets.

The central bank also says it expects prices in Japan to continue falling this year. In its semi-annual forecast, the Bank of Japan predicts that while the economy will recover of at a moderate pace, consumer prices will drop by four-tenths of a percent.

That would mean a fifth straight year of price deflation in Japan.

One major electronics company says that despite the economic uncertainty, it expects to turn a profit this year.

Hitachi says it recorded a profit of more than $230 million in the fiscal year that ended in March. That is a sharp turnaround from the previous year's record loss of $4 billion. The country's largest electronics maker attributes its recovery to cost-cutting efforts.

Hitachi President Yoshiki Yagi told reporters that it is difficult to eke out a profit in the current severe economy. He said his company is seeing fewer orders this year.

Matsushita Electric reported a loss for the second straight year. The world's second-largest consumer electronics maker, known for its Panasonic brand, lost $162 million in the last fiscal year. It blames loss on the global slump in the information technology industry and restructuring costs.

Of the nine major Japanese electronic makers that have reported their annual results, five have posted losses.