BoJ warns of twin threat to recovery

JAPAN'S struggle back from recession could be hampered further by the slide in the US dollar and turmoil in the world's financial markets, the country's central bank warned today.

For the first time this year the Bank of Japan failed to upgrade its assessment of the country's economic prospects as the rise in the yen on foreign exchange markets threatened to halt the crucial recovery in exports to the US, Europe and Asia.

The BoJ stuck by its previous opinion that the worst was over for the Japanese economy, despite the weakness in domestic demand and global uncertainty, due to gains this year in exports and industrial production. But that improvement may not continue, it warned, because the yen's strength reduced the competitiveness of its carmakers and electronics producers.

The BoJ said: 'Further destabilisation in currencies and financial markets could easily exert a negative influence on the economy.'

Signs of falling exports, production and investment have underlined the BoJ's concerns. The bank's report added to the volatility in Tokyo's stock market today, and the Nikkei Average closed 251.97 points down at 9747.82 amid uncertainty about moves on US interest rates tomorrow.