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Japan cuts economic assessment on weak consumer, business sentiment

Kyodo

The government on Wednesday downgraded its basic assessment of the national economy, citing weakening consumer and corporate sentiment due to turbulence in global financial markets and a slowdown in emerging economies.

The world’s third-largest economy is “on a moderate recovery, while weakness can be seen recently,” the Cabinet Office said in its monthly report, a downward revision from last month when it said weakness was seen only “in some areas.”

That is the first downward revision since October last year.

The Cabinet Office adopted a weaker view as personal consumption failed to rebound after a slump late last year and some manufacturers became more cautious.

The move could affect a government decision on whether to go ahead with a consumption tax hike as planned in April next year, though Prime Minister Shinzo Abe has said it will be implemented unless exceptional circumstances occur such as “a sharp contraction in the global economy.”

Abe is currently convening a series of meetings at his office to hear the opinions of Japanese and international experts to assess the state of the global economy and help him make a judgment on the consumption tax.

“Private consumption is almost flat, while consumer confidence appears to be pausing,” the office said. Last month it said private consumption held “firm as a whole.”

Japanese consumer confidence worsened in February for the second consecutive month, according to a Cabinet Office survey, which cited downward revisions to corporate profits and falling stocks as causes.

Reflecting weakness in emerging economies, the office said of corporate sentiment: “Firms’ judgment on current business conditions is almost flat, while more cautiousness can be seen in some areas recently.” It said in February cautiousness was seen in “some areas.”

Despite the downgrade in the overall economic assessment, the Cabinet Office retained a positive view toward short-term prospects, citing improvement in employment and income conditions as reasons the economy is expected to recover.

But it also warned of downside risks including a slowdown of emerging Asian economies including China, and cited increased uncertainty in overseas economies and from the effects of fluctuations in financial and capital markets.

However, the office revised upward its assessment of business investment. After government data showed recovery in machinery orders, it said business investment is “picking up” compared with “almost flat” in February.

It also upgraded the view on exports, describing them as “almost flat” from “in a weak tone,” partly reflecting solid automobile shipments to the United States, a Cabinet Office official said.