Will Japan suffer setbacks in production after the earthquake?

Bank of Japan cuts assessments of most regions - Market Watch

The Bank of Japan downgraded its assessments of local economic conditions for seven out of nine regions in a quarterly report issued Monday, reflecting setbacks in production after the earthquake that struck one month ago.

“Cautious views about the economy have become widespread in many regions, mainly reflecting setbacks in production following the Great East Japan Earthquake” on March 11, the central bank said in a statement after a meeting of its regional branch managers.

The hard-hit Tohoku region reported “significant damage to the economy from the earthquake, with impairment of the social infrastructure, as well as production and business facilities,” said the report, which is roughly equivalent to the U.S. Federal Reserve’s Beige Book.

“Other regions also reported cautious views, noting that the effects of the earthquake were starting to become noticeable, mainly on the production side, or that the economy had begun to show signs of stagnation, due mainly to supply-chain disruptions, as well as cautious consumer sentiment,” the BOJ said.

The central bank’s policy board meets next on April 28, when it will also release its semiannual economic outlook report. Economists had expected the BOJ to cut its forecasts sharply to reflect the disasters, and Monday’s downgrades reinforced these expectations.

At its most recent meeting Thursday, the BOJ unveiled a special lending facility for financial institutions in disaster-hit areas. Read more on Bank of Japan's special loans.

Separate data released earlier Monday by the Cabinet Office showed that Japanese private-sector core machinery orders, a key leading indicator of capital spending for the country, fell 2.3% in February, the month before the disaster. That outpaced economists’ projection for a 0.9% fall. Read more on Japan machinery orders.

Lisa Twaronite is MarketWatch's Tokyo bureau chief.