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Portfolio > Economy & Markets

Japan Downgrades Economic Assessment

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For the first time in six months, Japan has downgraded its economic assessment, citing effects of the earthquake and tsunami on a variety of elements within its economy.

Reuters reported that wholesale prices rose more quickly in Japan than they had in the last two years, as company profit margins hung in the balance. A short supply of electricity and lingering fears over radiation leaks contributed to pressure on companies that are already struggling to find enough parts to keep production lines going; profit margins may take a hit as they will likely be reluctant to pass along higher costs to customers.

Kaoru Yosano, Japan's economics minister, said in the report, "The biggest risks, or uncertain factors for the economy, are when power supplies will recover, whether the nuclear situation will keep from worsening." He added, "It will cause various indirect damage, such as dampening consumer sentiment, but the economy will pick up toward the end of this year."

Last week the Bank of Japan also cut its assessment.

Citing power supply issues, supply chain problems, and the increase in oil prices, the report from the government included downgrades on exports, industrial production, and private consumption. A rise in commodity prices helped push wholesale prices higher—they were up 2.0% for the year to March, which was above the forecast 1.9%—and supply shortages are also expected to contribute their share of pressure to the increase during April, which is when many Japanese companies adjust the prices they charge to one another.

Tamai Chino, economist at Mizuho Research Institute in Tokyo, said in the report, "We see prices of steel and chemicals rising. These are industries that use a lot of electricity. Since there are electricity shortages, companies won't be able to make as much steel or chemicals as they could in normal times."


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