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Economy

Fear China, not Greece, Kuroda says

BOJ Gov. Haruhiko Kuroda speaks at a press conference on July 15.

TOKYO -- Bank of Japan Gov. Haruhiko Kuroda said he is more concerned about events in China than Greece's debt crisis.

     The central bank on Wednesday lowered its forecast for real economic growth for fiscal 2015 to 1.7% from an earlier projection of 2.0%.

     It did so amid concerns about China's economy because of the slumping stock prices. Although Kuroda has maintained his basic stance that economic downturn overseas is temporary, a growing number of BOJ officials are wary of looming China risk.

     When asked about China and Greece during a Wednesday news conference, Kuroda said he is taking a greater interest in China. Although the prospect of the Greek debt crisis is unpredictable, "its effect on Japan's economy is likely to be very small," Kuroda said. He pointed out that exports and investments from Japan are much more likely to be China-bound. He believes China's economy poses a greater risk to Asia.

     China's gross domestic product for the April-June quarter, released Wednesday, was also discussed topic at the bank's monetary policy meeting, which took place before the news conference. The country logged a 7.0% growth from a year earlier, unchanged from the previous quarter. "It seems that China's economic slowdown has been curbed," said a BOJ executive.

     But Chinese stocks started to decline sharply in mid-June. The April-June GDP figures do not fully factor in the effect of the stock shock. Chinese share prices are still higher than they were at the end of last year, but tumbled more than 30% in a few weeks. Many in the market are closely watching Chinese stock movements.

     In addition to the recent stock market plunge, sluggish exports from Asia to China are another source of worry. Structural change in the Chinese economy has moved the focus from exports to domestic demand. "Trade is on the decline across Asia," said Ryutaro Kono, chief economist at BNP Paribas Securities (Japan).

     The BOJ slashed its economic forecast because of a slowdown in exports in the April-June quarter. Although Kuroda said China's economy was a risk, he played down its extent. "China's economy is stable because of the government's fiscal and monetary stimulus measures," according to Kuroda. If China's economy slows longer than expected, that could cause the BOJ to downgrade its economic forecast again, and make it more difficult to reach the 2% price stability target in the first half of fiscal 2016.

     Economic growth and inflation forecasts have been cut by the BOJ several times since last spring. Factors such as the huge pullback in demand following the consumption tax hike last spring and the slump in crude oil prices were unexpected, Kuroda said. Although the BOJ is becoming confident the Japanese economy will improve, market players believe China's economy is a new threat to Japan.

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