UPDATE 1-Japan government says economy at standstill

* Govt says economy appears to be at a standstill

* More pressure could lead to recession, official says

* Cuts view on exports, output to say they are weakening

* Yen’s rise hurts sentiment, clouds outlook – official
(Rewrites, adds details, direct quote, graphics)

By Tetsushi Kajimoto

TOKYO, Oct 19 (BestGrowthStock) – Japan’s government said on Tuesday
that the economy was now at a standstill, highlighting the
growing gulf between developed and emerging countries at the
heart of global currency tensions.

In a monthly report, the government downgraded its assessment
of the economy for the first time since February 2009. A senior
Japanese official said further pressure on the economy, which is
mired in stubborn deflation, could tip it into recession.

“If the economy turns out as expected in our main scenario,
we may end up describing the current situation as a soft patch,”
said the official at the Cabinet Office, which compiled the
report.

“But if it comes under further downward pressure, it could
end up slipping into recession,” he said.

Faltering recoveries from the global financial crisis in
developed economies have pushed global investors into emerging
markets in search of higher returns, driving up their currencies.

The move has been exacerbated by widespread expectations that
the U.S. Federal Reserve will print billions of dollars to try to
lift the U.S. economy, sparking concerns that the extra liquidity
will find its way into emerging markets.

The currency tensions will dominate a Group of 20 finance
ministers’ meeting in South Korea starting on Friday and a G20
summit in November, as officials look to tackle the economic
imbalances and the threat of competitive currency devaluation.

“Currencies will be the topic that many people will be
talking about … at the G20. I hope that good ideas will be put
forward there and we will explain the present situation in
Japan,” Finance Minister Yoshihiko Noda said.

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Graphic on trade weighted fx: http://r.reuters.com/qun86p

Currency tensions map: http://r.reuters.com/jec96p

PDF report on currencies: http://r.reuters.com/gez77p

For full list of related stories, click [ID:nLDE69308R]

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Japan’s policymakers have grown increasingly concerned by a
slowdown in growth in the export-reliant economy, prompting the
government to draw up a supplementary budget and the central bank
to offer cheap loans and to promise to buy assets.

A rise in the yen to a 15-year high against the dollar added
to these woes, sparking the first currency intervention by Japan
in six years.

YEN’S RISE HURTS

The latest assessment by the government was the first time
since July 2008 — just before the onset of the last global
recession — that it had described the economic situation as at a
standstill.

It said the economy could be depressed by a slowdown in the
global economy and swings in share prices and foreign exchange
rates as a rising yen threatens exports.

“Economic movements appear to be pausing recently,” the
report said, while repeating that the economy was in a mild
deflationary phase.

Previously, it had said the situation was becoming
increasingly severe although the economy was recovering, with
some movement seen toward a self-sustaining recovery.

The report said some weakness could be expected for the time
being but the economy was likely to pick up with help from
improvement in overseas economies and government stimulus steps.

The government also cut its view on exports and industrial
output, saying they were weakening, which prompted the downgrade
of its overall economic assessment.

A senior government official warned that if weakness
persisted in exports, due to a slowdown in Asian economies, and
in production, it would hurt corporate capital spending and
personal consumption, choking off movement towards a
self-sustaining economic recovery.

The yen’s rise clouds the outlook as it dampens sentiment, he
added.

The yen (JPY=: ) is still close to a 15-year high against the
dollar, undermining the earnings and competitiveness of Japan’s
export sector and so acting as a drag on the stock market.

The government said it wanted the Bank of Japan to support
the economy through “appropriate and flexible” monetary policy
while the two branches work closely together — phrasing it used
when it announced 5.05 trillion yen ($62 billion) in stimulus
spending on Oct. 8.

The central bank surprised markets on Oct. 5 by cutting
interest rates and pledging to buy 5 trillion yen worth of assets
to pump more money into the flagging economy.

Japan’s economic growth slowed from an annual clip of 5
percent in January-March to 1.5 percent in the second quarter,
with analysts expecting it to hit a soft patch ahead as the
global economy slows and stimulus-driven consumption runs its
course.
($1=81.26 Yen)
(Editing by Edmund Klamann and Neil Fullick)

UPDATE 1-Japan government says economy at standstill