The Bank of Japan raised its economic assessment for the first time in nine months as faster overseas growth bolsters exports and production. “Japan’s economy is gradually emerging from the current deceleration phase,” the central bank said in a statement today after keeping the key interest rate between zero and 0.1 percent and the size of an asset-buying program at 5 trillion yen ($60 billion) by a unanimous vote. Japanese government bond yields are climbing on expectations global growth will accelerate this year and commodity inflation will increase worldwide, with the benchmark 10-year yields rising to a nine-month high last week. A brighter outlook combined with economists’ forecasts for the recovery to take hold this quarter may reduce the possibility of the central bank bolstering credit-easing measures. “Unless the economy significantly deviates from its gradual recovery path, there’s little chance of further easing,” said Noriaki Matsuoka, an economist at Daiwa Asset Management Co. in Tokyo. “Overseas economies are improving, and it looks like both production and exports bottomed out.” The Nikkei 225 Stock Average has risen 4.5 percent this year, and advanced 0.3 percent as of 2:33 p.m. in Tokyo today. Japan’s benchmark 10-year government bond yields have also climbed since the start of 2010, reaching a 10-month high of 1.35 percent last week. They slipped today to 1.29 percent. Japan’s currency traded at 83.45 per dollar, weaker than the 15- year high of 80.22 on Nov. 1. GDP Contraction Gross domestic product shrank at a smaller rate than estimated in the final three months of 2010 and economists forecast growth will resume this quarter, the government said yesterday. Twelve of 15 economists surveyed by Bloomberg News last week said the BOJ will probably raise rates in 2013 at earliest, while two said borrowing costs will increase in 2012 and one said the bank will refrain from any increase until 2014. “With good economic data and rising stocks, investors are starting to reflect” the economy’s improvement in their expectations for interest rates, said Tadashi Matsukawa, head of fixed income at PineBridge Investments Japan Co., which manages about 2.5 trillion yen in assets. Overseas demand boosted profits of Japanese companies last quarter, offsetting the economy’s contraction and the yen’s 2.6 percent gain during the period. Resuming Uptrend “As the growth rate of the global economy has started increasing again led by emerging and commodity-exporting economies, Japan’s exports and production are showing signs of resuming an uptrend,” said Governor Masaaki Shirakawa’s board in the statement. Companies listed on the Tokyo Stock Exchange’s first section predicted that their profits rose 19 percent in the three months ended Dec. 31 from a year earlier, according to Mizuho Securities Research and Consulting Co. Their profits will gain 54 percent in the year ending March 31, it said. Toshiba Corp., the world’s second-biggest maker of flash memory, last month raised its full-year profit to 100 billion yen from 70 billion yen as demand rises for smartphones and tablet computers worldwide. Improving profits have helped drive up the Nikkei 225 Stock Average by 4.9 percent this year. Pressure Limited “As long as stock prices remain firm, the chance for the BOJ to come under rising political pressure to do more will probably be limited” even if the yen strengthens, said Seiji Shiraishi, chief economist at HSBC Securities in Tokyo. The BOJ lowered rates to between zero percent and 0.1 percent and unveiled a 5 trillion yen asset-buying fund in October. Shirakawa last week repeated the bank will expand the fund should the economy deteriorates and more monetary stimulus is needed. Shirakawa said on Feb. 7 that the economy is “about to emerge” from a pause and deflation is “gradually abating.” Kazuo Momma, the central bank’s top economist, said in January the economy will probably start picking up steam in the first quarter, followed by Hidetoshi Kamezaki, a BOJ board member, who this month said the economy’s lull will be overcome “quickly.” Japan’s gross domestic product contracted at an annualized 1.1 percent in last quarter, less than economies estimated. Japan’s export growth accelerated and factory output rose for a second consecutive month in December and the leading indicator of the Cabinet Office’s business conditions rose to its highest level since April. To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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