Japan government keeps view of weaker recovery pace, but downgrades exports

The government on Friday retained its view that the pace of economic recovery from the coronavirus pandemic-caused shock has “weakened” in its monthly assessment for October while downgrading its assessment for exports amid supply shortages.

The Japanese economy is “picking up, although the pace has weakened” due to the severe situation caused by the virus, the Cabinet Office said in its overall assessment, after revising it down the previous month for the first time in four months.

The report downgraded its view on exports for the first time in seven months, saying that they are “increasing at a slower pace” after having continued to “increase moderately” in September.

A government official told reporters the impact of supply chain disruptions due to surging COVID-19 cases in Southeast Asia has weighed on Japan’s industrial output, leading to relatively sluggish exports of not only auto-related products but also other items such as electrical devices since July.

The government kept its assessment for the industrial production component saying it is “picking up, although some weakness is seen recently.” Last month, the office downgraded it as the supply chain issue and a global semiconductor shortage have forced some Japanese automakers to reduce output.

The public investment component saw the first downward revision in six months, with the office saying it has been “in a weak tone recently, although it is at a high level.”

The official said a sluggish move has been seen in the number of public work orders received, apparently affected by budget cuts for reconstruction projects related to the massive 2011 earthquake and tsunami in northeastern regions.

Assessments of other major components were unchanged. The office said private consumption “shows weakness further,” using the same wording as the September report.

Although car sales remained sluggish, “signs of improvement have appeared” in the food services sector since more people have begun to eat out, following a sharp drop in new virus cases and subsequent lifting of the government’s state of emergency across the country on Oct. 1, the official said.

With requests for people to stay home and restaurants and bars to stop serving alcohol and close early, the months-long emergency was repeatedly expanded to cover 21 out of Japan’s 47 prefectures, including Tokyo, at the end of August.

Looking ahead, it said the economy is expected to continue picking up but warned “full attention should be given” to a further increase in downside risks due to “negative effects through the supply chains.”