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Government downgrades economic assessment second straight month

Kyodo

The government on Tuesday downgraded its assessment of the economy for the second straight month, as the consumption tax hike in April continued to hit consumer spending and industrial production.

“The Japanese economy is on a moderate recovery, while weakness can be seen recently,” the Cabinet Office said in its monthly report for October.

It was the latest sign that the sales tax hike to 8 percent from 5 percent will continue to have an adverse impact on the economy.

Prime Minister Shinzo Abe has said he will decide by year-end whether to go ahead with a second hike, to 10 percent, in October 2015, after assessing data for gross domestic product in the July-September quarter.

The Cabinet Office also said that “consumer prices are rising at a slower tempo recently.” The September report said consumer prices were “rising moderately.”

The report states that the government expects the Bank of Japan to achieve its price stability target of 2 percent “at the earliest possible time,” apparently suggesting that the central bank should take action if required.

It is the first time since 2012 that the government has downgraded its basic economic assessment for two months in a row.

September’s downgrade was the first in five months. “The Japanese economy is on a moderate recovery, while weakness can be seen in some areas,” the government said at the time.

Looking ahead, the government maintained its view that the economy is “expected to recover” as a result of its policies, but also said that “attention should be given to the downside risks of the Japanese economy such as a lengthening of the reaction after a last-minute rise in demand and slowing down of overseas economies.”

The report said there are signs that private consumption is “picking up” but noted it “appears to be pausing recently.”

Data released by the Cabinet Office earlier this month showed that consumer confidence worsened in September for the second consecutive month.

The report also said production is “decreasing recently” following a spike ahead of the tax hike by purchasers seeking to beat the rise.

It is the first time in five months that the assessment of production has been lowered. A government official cited a fall in automobile production as one factor.

Last Wednesday, the Ministry of Economy, Trade and Industry released separate data showing that industrial production in August fell by 1.9 percent from the previous month.

The Cabinet Office retained its assessments of exports as flat and of business investment as showing “some weak movements recently.”