In its latest monthly economic report released on Aug. 28, the government downgraded its assessment of the economy for the first time since October 2011 when the effects of the European sovereign debt crisis and the strong yen broadsided the economy.
Japan’s exports are slowing against the backdrop of worsening economic outlooks for the United States, Europe, China and the rest of Asia with the exception of India. Consumer spending, which accounts for about 60 percent of Japan’s gross domestic product, is running out of steam.
Instead of taking steps to enliven economic activities, the government has started restraining execution of the fiscal 2012 budget. This is because the Diet has failed to enact a bill to float bonds to cover about 42 percent of the funds for the budget in the midst of confrontation between the ruling and opposition parties. It is deplorable that this situation has been created primarily by the self-centered behavior of the government and the ruling Democratic Party of Japan in the Diet. Both the ruling and opposition camps should act quickly to end this unusual restriction of the budget execution because it could cause people to suffer.
Among other things, the monthly report written by the Cabinet Office pointed to a “further slowing down of overseas economies and sharp fluctuations in the financial and capital markets.” Economic conditions not only in Europe, which is plagued by the sovereign debt crisis, but also in China and the U.S., are negatively impacting Japan’s exports. Through July, exports decreased for three consecutive months from the previous month.
The Chinese economy is now less robust than before. China’s manufacturing industry index for August, which was released earlier this month, has fallen below 50 — the threshold for good and bad prospects — for the first time in nine months.
A slowdown in exports due to the European crisis and a tightening of the real estate market are believed to be responsible for the index’s drop. There is a view that it may be some time before the Chinese economy picks up again.
The government maintains the view that consumer spending and investment in public works projects for reconstruction from the 3/11 disasters will continue to underpin the Japanese economy, leading it to recovery. But the prospects for consumer spending are not bright. In August, sales of cars increased just 12.4 percent from the same month a year before, down from the 37.5 percent rise in July compared with the year before.
The government lowered its economic evaluation for three of Japan’s 11 regions — Kita Kanto, Minami Kanto and Tokai — for August, mainly due to slowing car production.
The effects of prolonged deflation continue. In addition, the unstable power supply and higher electricity costs represent downward risks. The government and the Bank of Japan should waste no time in taking necessary measures to buoy the economy.
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