Shirakawa Tells BOJ Chiefs Recession Risk Diminished

April 15 (Bloomberg) -- Bank of Japan Governor Masaaki Shirakawa told his regional managers that the economy has been picking up moderately and the risk of a return to a recession has diminished.

“Concerns that the Japanese economy would drastically deteriorate again have pretty much gone, although the pace of pickup will probably remain moderate for the time being,” Shirakawa said at the quarterly branch meeting in Tokyo today. He repeated that beating deflation remains a “critical challenge” and pledged to keep an “accommodative” policy.

The regional chiefs will give their assessment of the local economy later today, amid signs that the recovery is gaining momentum and price declines are moderating. The improvements won’t be enough to prevent the central bank from considering further monetary easing as the government urges it to fight deflation, said economist Seiji Adachi.

“Political pressure on the BOJ to do more will escalate” as a July election approaches, said Adachi, a senior economist at Deutsche Securities Inc. in Tokyo. “The bank is probably ready to implement additional measures, though it will be difficult to get rid of deflation anytime soon.”

Shirakawa said the decline in consumer prices will keep moderating as the economy continues to improve. He said earlier this week he is seeing “more positive signs” for prices. The remarks suggest policy makers may raise their inflation forecasts when they meet on April 30 to give their twice-annual outlook for the economy and policy.

Sovereign Concern

The governor said the global economy is recovering at a moderate pace overall, though there are concerns in financial markets about sovereign debt.

The regional heads are gathering a day after their counterparts at the Federal Reserve said the U.S. economy expanded “somewhat” across most of the country in March as consumer spending and manufacturing improved. Managers of the Osaka, Nagoya, Sapporo and Fukuoka branches will brief the press in Tokyo this afternoon.

Shirakawa and his board doubled a bank lending program to 20 trillion yen ($214 billion) in March amid persistent deflation and as Finance Minister Naoto Kan led government calls for more action. The bank’s next option would be to increase the size of the program again, Deutsche’s Adachi said.

DPJ Lawmakers

A working group of ruling Democratic Party of Japan lawmakers yesterday submitted a deflation-remedy proposal that it wants added to the party manifesto ahead of the July upper house election. The group said the government should consider targeting inflation of more than 2 percent and the central bank should try to attain that goal.

In January, board members forecast consumer prices excluding fresh food would slide 0.5 percent this fiscal year and 0.2 percent in the year ending March 2012. The bank may revise next fiscal year’s estimate up to around zero percent, a person familiar with the matter said last month.

Core prices, the central bank’s key inflation measure, declined 1.2 percent in February from a year earlier, the 12th straight drop.