— Consumption Slower Amid Pandemic While Capex Playing Catchup
— Japan Sees Pickup in Global Demand, Upgrading Views on S. Korea, Indonesia
By Max Sato
(MaceNews) – Japan’s government Friday downgraded its overview on the domestic economy for the first time since last April, when the first wave of COVID-19 infections prompted shorter business hours and stay-home lifestyles, according to its monthly report released by the Cabinet Office.
The government said “signs of a pickup remain in place” but added that “there is weakness in some areas,” the first downward revision to its overall assessment in 10 months.
Economic indicators are mixed: Consumer spending is slowing down as the government has extended its request for restricted economic activity for a month until early March, while business investment in equipment is playing catchup in light of a gradual pickup in global demand.
As for overseas economies, the government maintained its assessment that “signs of a pickup are seen” and upgraded its views on South Korea and Indonesia for the first time in three months and 30 months, respectively, after revising up its views on China and Taiwan for the first time in three months in January.
On the near-term outlook, the government repeated, “the economy is expected to pick up, supported by the effects of the policies and improvement in overseas economies.”
But it also warned about the drag from lockdowns and tougher restrictions on economic activity in many parts of the world, saying, “… full attention should be given to the further increase in downside risks.”
Key points from the monthly report:
The government revised down its view on private consumption for the third straight month. Spending on some services, such as eating out and traveling, has slowed down further amid fears of hospital bed shortages in Japan and despite hopes for vaccination eventually leading to easing of restrictions on businesses and households.
Spending on goods remains solid as demand for home office furniture and appliances is strong and people are cooking more at home during the pandemic.
The government revised up its assessment on business investment in equipment for the second consecutive month following its first upgrade in 28 months in January.
Carmakers and manufacturers of production machinery are increasing or upgrading their capacity, it said, repeating its recent observation. It added that telecom carriers and information service providers are changing their systems and networks more in tune with the fifth-generation technology standard.
Japanese core private-sector machinery orders, which exclude volatile orders for
power generation equipment and ships, rose 5.2% on month in December, posting the third straight increase, Cabinet Office data released Wednesday showed.
But the leading indicator of capex is projected by the Cabinet Office to fall 8.5% in the January-March quarter from the previous three-month period after surging 16.8% in the final quarter of 2020.
The government maintained its view that exports are increasing. Ministry of Finance data released Wednesday showed that Japanese exports jumped 6.4% on year in January for the second straight y/y rise, reflecting the recent recovery trend in global demand for semiconductors, but the faster pace of increase from December (+2.0%) was also due to rush shipments to Asia before the Lunar New Year holidays in February.
Other details:
The government’s view of key components of the economy in the latest monthly report vs. previous assessments:
* Private consumption “has been in a weak tone” vs. the pickup in private consumption “appears to be pausing” (the third straight monthly downgrade; last upgraded in October 2020).
* Business investment is “showing signs of a pickup” vs. “starting to level off” (the second straight upgrade; last downgraded in November 2020).
* Housing construction is “flat on the whole” (unchanged; upgraded in January 2021).
* Exports are “increasing” (unchanged; upgraded in December 2020).
* Industrial production is “picking up” (unchanged; upgraded in November 2020; last downgraded in April 2020).
* Corporate profits are “picking up as a whole while weakness is seen among non-manufacturers” due to the impact of COVID-19 vs. “decreasing substantially” due to the impact of COVID-19 but “the rate of decline is slower as a whole” (the first upgrade in two months; last downgraded in April 2020)
* Employment conditions are improving with some soft spots (unchanged; upgraded in September 2020).
* Consumer prices are flat (unchanged; downgraded in March 2020).