Japan Cuts Economic Assessment

August 28, 2012 at 05:20 AM
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The Japanese government has cut its economic assessment for the first time since October 2011, saying that the country's economy could be in for additional risk if the global economy slows further and markets become more volatile.

Reuters reported Tuesday that the government's outlook was more pessimistic than that of the Bank of Japan (BOJ), which had said the economy was picking up at a moderate pace. Economists sided with the Japanese government's assessment.

In its July report, the government had said that the economy was recovering moderately on reconstruction demand but remarked that there were difficulties. In the August report, it still mentioned moderate recovery but instead pointed to "weak movements," a more downbeat outlook. The Cabinet Office's monthly report for August said in part, "The economy is moderately recovering helped by reconstruction demand, while some weak movements were seen recently."

Citing slowdowns in the U.S. and China, coming on top of lessening demand from Europe, the government said that it also foresaw a reduction in the world economy.

Yasuo Yamamoto, senior economist at Mizuo Research Institute in Tokyo, was quoted saying, "Looking at both domestic demand and overseas economies, I don't expect the economy to slide back into a recession but I cannot say it will stage a recovery either," adding that Japan could find itself in a soft patch in the third quarter.

The Cabinet Office also cut its outlook on private spending, which it described as in a moderately increasing trend. The language was a bit more negative than its description in July. A cabinet official was quoted saying, "We used the word trend to show that the pace of increase is slowing. Car sales are leveling off after a rapid increase earlier this year. In addition, poor weather in June has hurt consumption of clothing, beverages and air conditioners."

Meanwhile BOJ is holding back on a change in monetary policy, keeping an eye on the risk to recovery. "The BOJ feels it has eased enough already so it is likely to stand pat for the time being, thought it may cut its economic assessment next month following the poor trade data," Yamamoto said in the report.

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