• Kyodo

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The government on Friday downgraded its basic assessment of the economy for the second straight month, citing slower production and weakening private consumption amid the global economic downturn, increasing the likelihood of fresh stimulus measures.

“The economic recovery (following the March 2011 earthquake and tsunami) appears to be pausing due to deceleration of the world economy,” the Cabinet Office said in its monthly report. In August it said only that “some weak movements have been seen recently.”

Five of the 14 components were revised lower this month, including industrial output, which has been “in a weak tone,” and consumption, which is “almost flat” but showing some weakness. Business investment, corporate profits and bankruptcies were also lowered.

It is the first time in more than three years that the overall assessment has been downgraded two months in a row. The assessment was lowered for five straight months through February 2009, affected by the financial turmoil following the Lehman Brothers bankruptcy in September 2008.

“We must raise our alert level,” economic and fiscal policy minister Motohisa Furukawa told reporters after the report was released, saying that the government will closely watch global economic developments and their impact on Japanese exports.

The downgraded assessment came after the government halved second-quarter gross domestic product growth to 0.7 percent in a revised report released Monday. This led Prime Minister Yoshihiko Noda on Wednesday to express his readiness to draw up an extra budget for the current fiscal year to finance additional stimulus measures.

“We are facing some concerns” about the economy, Finance Minister Jun Azumi said at a separate news conference. The government will consider “whether it needs to make a response from the fiscal side.”

The tamer growth could also pile political pressure on the Bank of Japan to further ease monetary conditions and support business activity, as the bank is scheduled to hold a two-day policy meeting starting Tuesday.

While denying any differences between the government and the BOJ, Azumi said he hopes the bank will “act appropriately at the right timing.”

The BOJ has said it will pursue an ultra-loose monetary policy to boost the economy, until it can ensure that consumer prices are rising 1 percent in terms of year-on-year change.

The consumer price index continued to fall in June and July. It rose 0.5 percent in March, the biggest increase in three years.

The latest assessment by the Cabinet Office came amid a gloomy global economic outlook. The sovereign debt crisis in Europe has had a negative impact outside the region through trade and financial channels.

China and other key Japanese trading partners in Asia have suffered slowing exports to Europe, where consumer and business sentiment has deteriorated, in turn slowing Japanese exports to Asian countries that often uses components made in Japan.

The office retained its view of exports, saying they “are in a weak tone.” Employment conditions are showing “signs of improvement, although some severe aspects still remain,” while recent price developments indicate the economy remains “in a mild deflationary phase,” the report said.

Weak consumption added to the evidence of the diminishing effects of the government’s subsidy program to encourage purchases of energy-efficient vehicles. The stimulus measure has helped boost output by automakers at a time when they are suffering slowing exports due to the sharp appreciation of the yen.

Looking ahead, the office said the economy is expected to return to a recovery track once overseas economies start picking up, while domestic demand linked to reconstruction following the March 2011 disasters persists. But it also underscored downside risks such as a further slowing of the world economy and uncertainty over the eurozone crisis.

Output drop trimmed

Industrial output in July fell a seasonally adjusted 1.0 percent from the previous month, revised upward from the initially reported 1.2 percent drop, the government said Friday.

The reading represents the first decline in two months. The Ministry of Economy, Trade and Industry attributed the revision to data on medical goods as well as coffee and other beverage sectors, which were not available when it published the preliminary report Aug. 31.

The index of production at factories and mines stood at 91.7 against the base of 100 for 2005.

The index of industrial shipments was revised to a fall of 3.1 percent from an initially reported decline of 3.6 percent.

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