Japan's economy to stay in severe state for now: Masaaki Shirakawa

NAGOYA: Bank of Japan Governor Masaaki Shirakawa said on Monday the country's economy will eventually resume a recovery but will remain in a severe state for the time being due to the pain from recent yen rises and slowing global growth.

"When uncertainty over the overseas economic outlook is high, as is the case now, yen rises may hurt Japan's economy by reducing exports and corporate profits as well as by worsening business sentiment. We need to be mindful of this," Shirakawa told business leaders in Nagoya in the central Japan prefecture of Aichi, home to automobile giant Toyota Motor Corp.

Shirakawa also said European banks are being forced to curb lending as they face difficulty raising funds in the market, warning of heightening tensions in global markets, particularly for dollar funding.

The BOJ eased monetary policy in October by boosting its asset buying scheme as slowing global growth and sharp yen rises clouded the outlook for the export-reliant economy.

It kept monetary settings unchanged this month but warned of the widening fallout from Europe's debt crisis, signalling its readiness to ease policy again if Japan's economic recovery came under threat.