Prime Minister Shinzo Abe’s administration on Tuesday upheld its relatively bullish view of the economy despite the recent surprise release of data showing Japan had fallen into recession following the April 1 consumption tax hike.
“The Japanese economy is on a moderate recovery, while weakness can be seen in private consumption,” the Cabinet Office said in its monthly report for November. It voiced concern that the consumption tax increase to 8 percent is still dampening domestic demand.
On Friday Abe dissolved the Lower House for a snap election on Dec. 14 that he billed as a referendum on his “Abenomics” policies, which center on drastic monetary easing and massive fiscal spending.
The government had downgraded its basic assessment of the economy for the second consecutive month through October. Last month, the report said the economy is undergoing a moderate recovery, “while weakness has been seen recently.”
Data released last week showed the economy shrank by an annualized real 1.6 percent in the three months through September, down for the second straight quarter, following a revised 7.3 percent plunge in the April-June quarter.
The economic downturn prompted Abe to delay until April 2017 the additional sales tax increase to 10 percent scheduled for October 2015.
A Cabinet Office official, however, said economic indicators have started to show that the negative impact of the first tax hike is petering out and thus the government did not lower its economic view in November.
Economic and fiscal policy minister Akira Amari tried to brush aside fears that lukewarm consumption will continue to weigh on the broader economy, saying at a news conference that corporate profits are “at their highest level ever.”
“Higher corporate profits have gradually contributed to an improvement in wages,” Amari said, expressing hope that individual income growth will help shore up private spending, which accounts for around 60 percent of Japan’s gross domestic product.
In the latest report, the government upgraded its assessment of corporate profits for the first time in 12 months, saying they “appear to be pausing as a whole” but show “a recent improvement among large manufacturers.”
The view on housing construction was also raised, given that it has shown signs of bottoming out, the report showed.
The Cabinet Office, meanwhile, cut its assessment of the employment situation for the first time in 24 months, noting it “shows a trend toward improvement, while an increase in the ratio of job offers to applicants appears to be pausing.”
As for the outlook for the economy as a whole, the government said it is “expected to recover” on the back of economic policies, but “attention should be given to the downside risks of the Japanese economy such as declining consumer sentiment and the slowing down of overseas economies.”
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