The worst housing slump in four decades and rising oil prices threaten growth in the world's second-largest economy, Cabinet ministers said Friday.
"There is concern that a decline in housing investment will become a factor pushing down gross domestic product," Economic and Fiscal Policy Minister Hiroko Ota told reporters in Tokyo. "I'm more focused on the downside risks to the economy."
Government data released earlier this week showed that housing starts slumped 44 percent in September and 43.3 percent in August because of stricter rules for obtaining building permits. The land ministry has said it would relax the regulations after industry criticism that they were too onerous.
"We've heard that the land ministry has taken some measures, but there will be some impact in any case," Finance Minister Fukushiro Nukaga said.
The Bank of Japan this week cut its economic growth forecast to 1.8 percent from 2.1 percent for the year ending March, in part because of the drop in construction activity.
The economy probably grew an annualized 1.8 percent in the third quarter, according to the median estimate of 21 economists surveyed. The government will release its report on third-quarter GDP on Nov. 13.
Crude oil climbed higher than $96 a barrel for the first time Thursday. The gains may "hurt profits of small and medium-size companies," Ota said. Nukaga said he's watching the effect of higher energy costs on the economy.
The ministers also highlighted the risk that the U.S. housing recession may deepen, slowing growth in Japan's biggest export market.
"The U.S. housing slump is gradually affecting the nation's economy," Ota said. Still, she said the impact on Japan of the U.S. subprime mortgage collapse will probably be limited.