By Mas Sato
(MaceNews) – Japan’s government Monday maintained its economic overview for June after upgrading it in April as the drag from the pandemic appears to have waned while continuing to warn about the impact of the protracted Ukraine war, Covid restrictions in China, supply bottlenecks and fluctuating financial markets, according to its monthly report released by the Cabinet Office.
In its June report, the government said the economy is “showing signs of a pickup.”
It also repeated its request first made last month that the Bank of Japan “achieve the price stability target of two percent in a sustainable and stable manner” but dropped its demand that the bank should conduct “appropriate” monetary policy. The government noted that the BOJ has maintained its easing stance to support smaller businesses and ensure financial market stability during the pandemic.
The Bank of Japan on Friday decided to maintain its super-low interest rate targets along the nearly flat yield curve and large-scale asset purchase program to support economic recovery and lead inflation toward its stable 2% target from relatively low levels, staying as a lone wolf while other major central banks are rushing to raise rates to tame inflation.
As for overseas economies, the government repeated that they are “picking up while stalling in some areas.” Last month, it downgraded its overall assessment for the first time in 25 months amid Chinese slowdown. Previously, it had said overseas economies were “picking up while the effects of coronavirus infections are easing.”
On Japan’s near-term outlook, the government repeated its recent view, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies.” It added that “economic and social activities are moving toward normalization.”
It also warned against “downside risks” posed by supply constraints, rising materials prices, fluctuations in financial markets amid concerns over the effects of the prolonged Ukraine war and restricted economic activity in China.
Based on its policy mix of large-scale monetary easing, flexible fiscal spending and growth strategies aimed at promoting private investment, the government will implement “flexible macroeconomic policy measures without hesitation” to achieve autonomous growth led by private demand and completely end deflation.
Key points from the monthly report:
The government downgraded its assessment on production for the first time in seven months, saying “its pickup is stalling.” Until last month, it had said output was “showing signs of a pickup” as a result of its first upgrade in 14 months in January. Supply delays are limiting the production of vehicles. The growth in electronic devices output has been slowing due to recent Covid lockdowns in Chinese cities, but demand for chips is likely to remain strong throughout next year.
Japan’s industrial production posted the first month-on-month drop in three months in April but manufacturers polled by the Ministry of Economy, Trade and Industry expect output to rebound in May and surge in June.
On the upside, the government revised up its view on housing construction for the second straight month (“firm” in June vs. “largely flat” in May and “weaker” in April). It upgraded its view on imports for the first time in three months (“stopped falling” in June vs. “softening” in May and “largely flat” in April) as China has eased its Covid restrictions.
The government maintained its assessment on private consumption, which accounts for about 55% of the gross domestic product, saying it is “showing signs of a pickup,” after upgrading it in April from its previous view that the pickup in consumption “appears to be pausing.”
People continued spending more on restaurants and bars as well as traveling to tourist spots in nearby prefectures after the government ended its strict Covid rules in late March. Credit card data shows expenditures on services including traveling and eating out have stayed above the recent average (2016 to 2018) after a recent improvement while an online weekly consumer survey indicated that spending moved above the recent average year patterns (2016 to 2018) through mid-June.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from May 25 to May 31 and released June 8 indicated that sentiment continued improving last month on expectations for leisure spending in the summer despite concerns about rising costs for food and energy.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate posted the third straight monthly increase, up 3.6 points at 54.0 on a seasonally adjusted basis in May, after rising 2.6 points to 50.4 and surging 10.1 points to 47.8 in March. It is above the key 50 line but still below the 16-year high of 57.5 hit in December 2021 (the highest since 57.7 in December 2005).
The Watchers’ outlook index, which shows sentiment in two to three months, marked the fourth straight increase, rising 2.2 points to 53.5 in May after edging up 0.2 point to 50.3 in April and rising 5.7 points to 50.1 in March. January’s 7.8-point decline to 42.5 was 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 in November last year. Shipments to the US and Europe are showing signs of a pickup but those to China are falling.
The export volume index calculated by the Cabinet Office posted the first month-on-month rise in three months, rising a seasonally adjusted 1.8% in May after falling 3.1% in April, being flat (-0.0%) in March and rising 0.2% in February.
Global reopening demand for iron and steel and semiconductors continued driving Japanese exports to surpass year-earlier levels for the 15th month in a row in May, up 15.8%, after hitting a record high in March while shipments to China marked the second straight year-on-year drop amid Covid lockdowns in China. Shanghai lifted a two-month lockdown at the end of May, which is expected to gradually reopen the flow of semiconductors and smartphones to Japan and shipments of Japanese chip-making equipment.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
- Private consumption is “showing signs of a pickup” (unchanged; upgraded in April 2022; downgraded in February 2022).
- Business investment is “showing signs of a pickup” (unchanged; upgraded in February 2022; downgraded in December 2021).
- Housing construction is “firm” vs. “largely flat” (the second straight upgrade; last upgraded in May 2022; downgraded in February 2022).
- Exports are “largely flat” (unchanged; upgraded in December 2020; downgraded in November 2021).
- Imports “have stopped falling” vs. “softening” (the first upgrade in three months; last upgraded in March 2022; downgraded in May 2022).
- The pick up in industrial production is “stalling” vs. production is “showing signs of a pickup” (the first downgrade in seven months; upgraded in January 2022; last 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 March 2022; downgraded in April 2020).
- “Signs of a pickup in business sentiment are pausing” (unchanged; upgraded in December 2021; downgraded in March 2022).
- Employment conditions are “showing signs of a pickup” (unchanged; upgraded in May 2022; downgraded in May 2020).
- Consumer prices “have been rising” (unchanged; upgraded in May 2022; downgraded in March 2020).
Contact this reporter: max@macenews.com
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