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TOKYO May 22 (Reuters) - Bank of Japan Governor Masaaki Shirakawa said on Friday that the economy was no longer in a freefall, but that uncertainty over the outlook nevertheless appeared not to have decreased in the last month.
The following are key quotes from Shirakawa at a news conference:
"The economy in the January-March quarter contracted a record 15.2 percent in annualised terms, hurt by weak domestic and external demand. Such tough conditions and the figure were within our expectations as expressed in our outlook report in April.
"But more recently, exports and production are beginning to bottom out against the backdrop of progress in inventory adjustments, and the pace of deterioration in the economy is likely to moderate gradually, leading to a bottoming out.
"Therefore, I expect the GDP figures in the April-June quarter to improve sharply from the January-March period."
"The economy has been moving in line with the projection we made in the outlook report."
"There have been expressions like freefalling or falling off a cliff. We are no longer in that sort of situation."
"We didn't explicitly discuss whether the level of economic uncertainty has decreased at today's meeting, but my impression is that there has been no big change here.
"As for the outlook, the key is how strong final demand will be after inventory adjustments are over. But there is a lot of uncertainty over this point. So we will carefully watch downside risks."
"A fall in demand triggered cuts in production, and that's now leading to a fall in employment and wages. That puts pressure on consumption.
"Capital spending depends on views on the long-term economic outlook. If one thinks the world will not return to robust growth, capital spending will be soft.
"Thus we think consumption and capital spending will be weak for the time being."
CORPORATE DEBT MARKETS
"It appears that CP and corporate bond markets are showing a state of polarisation. While issuing conditions have improved for high-rated debt and the volume of issues has increased, low-rated CP and corporate bonds can't be issued...
"We are hoping that a wider range of corporate debt will be issued. It is a plus that issuance of triple-B bonds has resumed, but it is still limited to certain sectors.
"I don't think the corporate bond market has returned to the situation seen before" the financial crisis.
"The pace of bank lending growth has accelerated since the end of last year, and it has been moving at the highest levels since we started the current data.
"As for banks' lending attitudes, the credit cost has risen as the economy has worsened, and there was a concern that stock price falls could squeeze banks' capital bases. Those factors have weighed on banks' lending stance.
"But banks have increased lending, partly as small firms have been given government guarantees, and the BOJ and other policy makers have provided various support measures.
"As for the outlook, banks' lending attitudes will be influenced by economic developments, which will determine credit costs, and financial market trends, which will affect stock prices."
"Long-term bond yields in the U.S. and Europe have been rising in the past few months. This reflects the fact that sharp falls in the economy have abated and the economic outlook has improved.
"During this period the Fed and also the Bank of England have been buying long-term bonds.
"This reminds us of the fact that the level of long-term bond yields will be determined by market players' views on the long-term outlook for the economy and inflation."
"And it's important to accept the signals long-term bond markets are sending."
IMPACT FROM NEW FLU STRAIN
"Global financial markets have not been thinking too much about the impact of the new flu as confusion in society and the economy has been avoided so far."
"The new flu has spread since last weekend in Japan and that has affected lives, tourism, and services in certain regions. But so far that has not had a big impact on the overall economy. It has not spread anxiety to the point where it shifts the trend in domestic markets."
"But depending on how the flu spreads further and how we act on it, it could affect distribution, production and consumption. So we need to watch that carefully."
U.S. STRESS TEST
"The stress tests the U.S. authorities have conducted ... are a necessary step in light of our own experience, and we hope that the U.S. financial system moves towards stabilisation following this." (Reporting by Hideyuki Sano, Tetsushi Kajimoto and Yoko Nishikawa; Editing by Chris Gallagher)