By Max Sato
(MaceNews) – Japan’s government Friday maintained its overview that the economy is showing signs of a pickup amid some soft spots as Covid cases appear to have peaked, but also warned that rising prices, volatile financial markets, and the war in Ukraine could heighten downside risks, according to its monthly report released by the Cabinet Office.
The government said the economy is “showing signs of a pickup, although some weakness is observed and severe conditions caused by the pandemic remain.” Last month, it downgraded its view for the first time in five months amid Omicron-hit sluggish consumer spending.
As for overseas economies, the government also maintained its overall assessment, saying they are “picking up while the effects of coronavirus infections are easing.”
It upgraded its view on China for the first time in 14 months, noting that signs of a pickup are emerging despite restrictions in some regions aimed at keeping a resumed surge in Covid cases from rising further.
On the near-term outlook, the government remains cautiously optimistic about recovery, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.” It vowed to “take all possible measures” against Covid while economic and social activities moving toward more normal conditions.
It also warned about “higher downside risks” posed by rising materials prices, fluctuations in financial markets and supply constraints amid uncertainty over the Ukraine situation as well as the effects of the pandemic. It highlighted the impact of rising costs in light of surging prices of oil, gas, and other commodities. Expectations for aggressive rate hikes by the Federal Reserve, compared to the Bank of Japan’s pledge to maintain zero to negative interest rates, have pushed the yen weaker, making imports more expensive. Stock markets have also been on a roller coaster ride, reacting to developments in Ukraine and comments from Federal Reserve officials.
Key points from the monthly report:
The government maintained its assessment on private consumption, which accounts for about 55% of the gross domestic product, saying its pickup “appears to be pausing,” after making the first downgrade in five months in February.
Credit card data showed spending on services including traveling and eating out remained sluggish throughout February while an online weekly consumer expenditures survey indicated that activity was hovering at the bottom of a range for recent average year patterns (2017 to 2019) until mid-March.
The government ended on March 21, as planned, its strict Covid rules short of a state of emergency for 18 prefectures including Tokyo which have been in place since late January, when 35 of the 47 prefectures were under restrictions. The total number of new Covid-19 infections in Japan is gradually declining but the numbers are still rising or little changed in some areas, making the outlook uncertain.
Ahead of the Bank of Japan quarterly Tankan business survey due on April 1, the government downgraded its assessment of business sentiment for the first time in 10 months, saying “signs of a pickup are pausing,” compared to its previous statement that sentiment was “showing signs of a pickup.”
Japan’s economic confidence is showing some resilience as households and businesses appear to be learning to live with the lingering negative effects of Covid-19 and the global supply bottlenecks, but rising energy and commodities markets and the war in Ukraine are posing downside risks, government data released earlier this month showed.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Feb. 25 to Feb. 28 indicated that sentiment suffered only a minor setback last month and that the outlook picked up slightly.
The Watchers’ sentiment index for Japan’s current economic climate edged down by just 0.2 point to 37.7 in February on a seasonally adjusted basis after plunging 19.6 points to 37.9 in January, when the government resumed public health restrictions.
The Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, marked the first rise in five months, up 1.9 points at 44.4 in February after falling 7.8 points to 42.5 in January, the lowest since 36.9 in December 2020.
In its monthly report, the government maintained its assessment of exports as being “largely flat” after downgrading it November. Shipments of vehicles and parts are improving while those of capital and telecommunications goods are slowing.
The Bank of Japan’s real export index rose a seasonally adjusted 3.8% on month in February for the first rise in three months as shipments of autos and auto parts picked up 2.2% after a 7.2% slump in January and capital goods exports rebounded 7.5% after a 6.6% drop. The increase followed decreases of 1.7% in January and 1.1% in December and a 9.1% jump in November. The index gained 2.3% in February on the October-December quarter, when it dipped 1.0% from the previous three-month period.
The government repeated that production is “showing signs of a pickup” after revising it up for the first time in 14 months in January. Output of production equipment and electronic devices is growing gradually to meet solid demand in Asia.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* The pickup in private consumption “appears to be pausing” (unchanged; last upgraded in December 2021; last downgraded in February 2022).
* Business investment is “showing signs of a pickup” (unchanged; last upgraded in February 2022; downgraded in December 2021).
* Housing construction is “weaker” (unchanged; upgraded in September 2021; downgraded in February 2022).
* Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
* Imports are “largely flat” vs. “weaker” (the first upgrade in 13 months; last upgraded in February 2021; downgraded in November 2021).
* Industrial production is “showing signs of a pickup” (unchanged; upgraded in January 2022; downgraded in November 2021).
* Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of the pandemic (unchanged; upgraded in August 2021; downgraded in April 2020).
* “Signs of a pickup in business sentiment are pausing” vs. business sentiment is “showing signs of a pickup” (the first downgrade in 10 months; upgraded in December 2021; downgraded in May 2021).
* Employment conditions are “picking up in some components such as job offers, while weakness remains due to the influence of the infectious disease” (unchanged; upgraded in December 2021; downgraded in May 2020).
* Consumer prices are “rising gradually” vs. “firm” (the first upgrade in seven months; last changed to “firm” from “flat” in August 2021; downgraded in March 2020).