The government retained on Monday its assessment that Japan’s economy is recovering moderately but adopted a weaker view on corporate sentiment due to a firming yen and Britain’s vote to leave the European Union.
The Cabinet Office said in its report for the fifth straight month that the economy is experiencing “a moderate recovery, while weakness can be seen recently,” as consumer spending continues to lack strength while income and employment conditions improve.
Reflecting the adverse effects of the yen’s appreciation, which tends to reduce the profits of exporters, “firms’ judgment on current business conditions shows further cautiousness,” the office said. In June, the government said business sentiment showed cautiousness.
In addition to the stronger yen, last month’s British referendum on exiting the EU further clouded the long-term prospects for companies because Britain’s withdrawal could lead to the postponement of capital investment in the country, a Cabinet Office official said.
The downgrade came after the government slashed its view of corporate profits due to falling commodity prices and a firmer yen, saying improvement “appears to be pausing, although they remain at a high level.”
As for the outlook, “attention should be given to the increased uncertainty in overseas economies, including the issue of Britain leaving the European Union and the effects of fluctuations in the financial and capital markets,” the office said.
Among other risks to the world’s third-largest economy, the government cited a slowdown in China and other Asian economies.
Reflecting the trend of weakening exports to emerging economies and a recent recovery in crude oil prices, the government said the surplus in trade and services is becoming flat, changing its description in June that said it had been on an increasing trend.
The government kept intact its assessment of other categories, including private consumption, business investment and industrial production.
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