By Max Sato
(MaceNews) – Japan’s government Thursday maintained its economic overview but pointed to a mixed bag of data showing a pickup in consumption on eased Covid restrictions against flat exports and stalling recovery in factory output amid protracted supply bottlenecks, according to its monthly report released by the Cabinet Office.
The government said the economy “continues to show weakness in picking up,” although severe conditions caused by the pandemic are “gradually easing.”
It is more or less the same picture depicted last month: The economy “continues to show movements of picking up” despite severe conditions caused by the pandemic, although “its pace has weakened.” In September, the government downgraded its overview for the first time in four months by adding that the pickup is slowing.
As for overseas economies, the government maintained the basic tone of its overall assessment, saying they are “picking up while severe conditions caused by coronavirus infections are easing.” Last month, it said those economies are “picking up, although severe conditions remain in some regions” due to the pandemic.
The government revised down its view on the U.S. economy for the first time in 19 months (“picking up” this month vs. “picking up steadily” last month) and its view on the South Korean economy was downgraded for the first time in 18 months (“pickup is slower” vs. “picking up”). Its official assessment of the Thai economy was upgraded for the first time in 12 months (“showing signs of a pickup” vs. “weak amid a resurgence in coronavirus infections”).
On the near-term outlook, the government remains optimistic about an eventual recovery from last year’s slump, saying, “The pickup in the economy is expected to continue, supported by the effects of the policies and improvement in overseas economies, while economic and social activities move toward normalization.”
It also warned about “higher downside risks” posed by the spread of the pandemic as well as the drag from supply-side constraints and rising materials prices.
Key points from the monthly report:
The government upgraded its assessment on private consumption, which accounts for about 55% of the gross domestic product, for the first time in 13 months, saying it is “showing movements of picking up, while some weakness remains,” compared to its previous statement that it was “showing weakness.” Just two months ago the official view on consumption was downgraded for the first time in four months.
The pickup remains uneven. New vehicle sales continued falling in October due to supply shortages while spending on eating out, movies and concerts have picked up since last month and hotel occupancy rates are increasing.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from Oct. 25 until Oct. 31, showed sentiment improved sharply as the government’s lifting of its Covid state of emergency restrictions on Oct. 1 has prompted more people to eat out, go to public events and travel beyond their regions, but some firms are cautious about the outlook amid surging costs for energy and materials.
The Watchers’ sentiment index for Japan’s current economic climate posted the second month-on-month rise in October, surging 13.4 points to an over seven-year high of 55.5 on a seasonally adjusted basis after rising 7.4 points to 42.1 in September and recovering from August’s 13.7-point plunge to a seven-month low of 34.7. October’s 55.5 was the highest level since 55.7 in January 2014.
Looking ahead, the Watchers’ outlook index, which shows sentiment about the situation two to three months ahead, also marked the second straight increase, rising a modest 0.9 point to 57.5 in October after surging 12.9 points to a nearly eight-year high of 56.6 in September and slipping 4.7 points to 43.7 in August. It was the highest level since 57.6 in November 2013.
On the downside, the government downgraded its view on exports for the second straight month, saying they are “largely flat.” Previously, it said exports were “increasing at a slower pace.”
Japanese export volumes have recovered to pre-pandemic levels but shipments to Asia dipped 1.6% on the month in October, hit by slower recovery in China. Auto exports have also trended down in recent months due to semiconductor shortages and parts supply delays.
The Bank of Japan’s real export index dipped a seasonally adjusted 0.1% on month in October for the third straight drop after slumping 6.6% in September, and fell 5.8% from the July-September quarter, when the index decreased 2.9% on quarter.
The government also revised down its assessment on production for the first time in two months, saying its pickup is “pausing” as slower Chinese recovery has dented demand for production machinery from Asia. Last month, it said output was “picking up, although some weakness is seen,” a statement downgraded in August for the first time in 17 months.
Industrial production slumped a seasonally adjusted 5.4% from the previous month in September for the third straight decrease as protracted global semiconductor shortages and pandemic-caused delays in parts supply from Southeast Asia have forced automakers and other firms to slash output and shipments.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
- Private consumption is “showing movements of picking up, while some weakness remains” vs. “showing weakness” (first upgrade in 13 months; last upgraded in October 2020; last downgraded in September 2021).
- Business investment is “picking up” (unchanged; upgraded in April 2021; downgraded in November 2020).
- Housing construction is “firm” (unchanged; upgraded in September 2021; downgraded in September 2019).
- Exports are “largely flat” vs. “increasing at a slower pace” (the second straight downgrade; upgraded in December 2020; downgraded in October 2021).
- Industrial production: Its pickup is “pausing” vs. it is “picking up, although some weakness is seen” (the first downgrade in two months; upgraded in November 2020; downgraded in September 2021).
- Corporate profits are “picking up, although some weaknesses remain among non-manufacturers” due to the impact of COVID-19 (basically unchanged; upgraded in August 2021; downgraded in April 2020).
- Business sentiment is “showing movements of picking up, although some severe aspects remain” (unchanged; upgraded in July 2021; downgraded in May 2021).
- Employment conditions are improving with some soft spots (basically unchanged; upgraded in September 2020; downgraded in May 2020).
Contact this reporter: max@macenews.com
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