The government downgraded on Friday its key assessment of the economy for the first time in 10 months, saying it is showing “weakness in some components” as consumption is slowing under the ongoing state of emergency over the coronavirus pandemic.
“The Japanese economy shows weakness in some components” and remains in a severe situation due to the coronavirus pandemic although it continues to show signs of picking up, the Cabinet Office said in its monthly report for February.
In the previous month, the report said the economy was “still in a severe situation” but showing signs of picking up.
The view on consumer spending was revised downward for the third straight month, with the office saying it has shown recent weakness. In January, it said an improvement in private consumption “appears to be pausing.”
A resurgence of infections in the country starting in mid-November led the government to declare a second state of emergency last month covering the Tokyo metropolitan area, Osaka, Aichi and other hard-hit prefectures.
The virus emergency, which requests that people stay home and that restaurants and bars close early has been extended for another month through March 7 as concerns remain about strains on the medical system even as cases fall.
“More people are believed to have refrained from going out under the extended emergency, which we think affected consumption negatively, especially spending on dining out and other services,” a government official told reporters.
Meanwhile, the official said spending on goods such as cars and home appliances was relatively solid. “The virus’s spread appears to be losing its momentum, so the economic situation is not that bad when looking forward,” he added.
The government last downgraded its assessment on the domestic economy in April when the first emergency due to the virus was declared. Effective nationwide until May, the declaration pushed Japan toward its deepest recession on record.
The latest monthly report upgraded its evaluation on capital expenditure for the second month in a row, saying it is showing signs of picking up recently. In January, it said business investment is “starting to level off.”
Assessments of corporate profits and imports also improved. Firms’ earnings are “picking up as a whole, while weakness is seen in nonmanufacturers due to the influence of the infectious disease,” the report said.
The office left unchanged its view on other major components, saying exports are “increasing,” and industrial production is “picking up.”
As for the outlook, the government said the economy is expected to begin a recovery “while socioeconomic activities will be resumed,” with measures to curb the virus’s spread kept in place “even after the state of emergency is lifted.”
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