Government downgrades view on Japanese economy for first time in three years amid China slowdown

Shoppers from abroad fill their suitcase with Japanese cosmetics at a shopping district in Osaka last month. | REUTERS

Kyodo

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Mar 20, 2019

The government downgraded its headline assessment of Japan’s economy for the first time in three years on Wednesday, citing a slowdown in exports to China, but denied the economy had fallen into recession.

In the March edition of its monthly economic report, the Cabinet Office said the world’s third-largest economy is “recovering at a moderate pace while weakness is seen recently in exports and industrial production in some sectors.”

It marks a downgrade from its earlier assessment that the economy is “recovering at a moderate pace,” which it had maintained since January last year. The last time the Cabinet Office downgraded its view was in March 2016.

But the growth phase that began in December 2012 is believed to be intact, with conditions underpinned by solid private consumption and capital expenditures, which together make up about 70 percent of gross domestic product, a government official said at a press briefing.

Earlier this month, a key indicator of economic trends showed that the economy may have already peaked last fall and since entered a recessionary phase, seemingly confirming the views of critics who say the government is overly optimistic.

Neither the Cabinet Office’s assessment nor the indicator — the coincident index of business conditions — are conclusive in judging whether the most recent growth phase surpassed the Izanami Boom from 2002 to 2008.

That job falls to a seven-member panel of academics and private-sector economists that retroactively determines the length of economic cycles after examining more data, a process that can take more than a year.

In its latest report, the Cabinet Office downgraded its assessment of industrial production, saying it is “almost flat, and weakness is seen in some sectors.”

It said exports had a “weak tone” while private consumption is “picking up” and business investment is “increasing,” all unchanged from the previous month.

Looking forward, risks including the outlook for China’s economy, where growth has slowed to a nearly three-decade low, and the trade conflict between the United States and China warrant attention, the report said.