By Max Sato
(MaceNews) – Japan’s government Thursday upgraded its overview for the first time in four months as the drag from an Omicron-led spike in coronavirus cases is easing to support consumption despite surging food and energy prices and uncertainty over the war in Ukraine, according to its monthly report released by the Cabinet Office.
The government said the economy is “showing signs of a pickup as severe conditions caused by the pandemic remain are easing.” Last month, it said the economy was “showing signs of a pickup, although some weakness is observed and severe conditions caused by the pandemic remain.”
Just two months ago, the government downgraded its economic view for the first time in five months amid Omicron-hit sluggish consumer spending.
As for overseas economies, the government maintained its overall assessment, saying they are “picking up while the effects of coronavirus infections are easing.”
As for 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 also repeated its warning against “a further increase in 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.
The government will “swiftly” implement measures in the fiscal 2021 supplementary budget, the fiscal 2022 budget and an emergency package to support the economy. It also plans to compile “comprehensive emergency measures” by the end of the month to help cushion the impact of high energy and commodities costs.
Key points from the monthly report:
The government revised up its assessment on private consumption, which accounts for about 55% of gross domestic product, saying it is “showing signs of a pickup,” instead of its previous view that the pickup in consumption “appears to be pausing.” Amid the Omicron storm in February, it made the first downgrade of its assessment on spending in five months.
Credit card data showed spending on services including travel and eating out is now picking up after being sluggish while an online weekly consumer expenditures survey indicated that activity had crept up close to the recent average year patterns (2016 to 2018) by early April.
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. This move raised hopes that demand for domestic travel will increase ahead of the Golden Week holidays from late April to early May.
The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from March 25 to March 31, indicated that sentiment improved for the first time in three months but it was still worse than the conditions seen in late 2021, which was before the highly contagious Omicron variant prompted the government to impose public health restrictions short of a state of emergency in January.
The Watchers’ sentiment index showing the direction of Japan’s current economic climate rose 10.1 points to 47.8 on a seasonally adjusted basis after slipping 0.2 point to 37.7 in February and plunging 19.6 points to 37.9 in January. It was still well below the 16-year high of 57.5 hit in December (the highest since 57.7 in December 2005).
The Watchers’ outlook index, which shows sentiment in two to three months, marked the second straight rise, up 5.7 point at 50.1 in March after rebounding 1.9 points to 44.4 in February and falling 7.8 points to 42.5 in January, which was the lowest since 36.9 in December 2020.
By contrast, the Cabinet Office’s Consumer Confidence Survey of households with two or more people, which was conducted around March 15, showed that sentiment continued deteriorating in all key areas. The results were collected from March 8 through March 22 and may not fully reflect the sentiment after the government eased its Covid restrictions.
The consumer confidence index posted the third straight monthly drop, falling 2.4 points to a 15-month low of 32.8 in March on a seasonally adjusted basis after dipping 1.3 points to 35.2 in February. It was the lowest since 31.8 in December 2020.
In its monthly report, the government maintained its assessment of exports as being “largely flat” after downgrading exports in November. Shipments of vehicles and parts are improving while those of capital and telecommunications goods are slowing.
The export volume index calculated by the Cabinet Office edged down a seasonally adjusted 0.1% on the month in March after rising 1.6% in February and falling 1.3% in January.
The Bank of Japan’s real export index rose a seasonally adjusted 0.7% on month in March for the second straight rise after rising a revised 1.4% in February and falling a revised 0.7% in January.
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.
Other details:
The government’s assessment of key components of the economy in the monthly economic report:
* The pickup in private consumption is “showing signs of a pickup” vs. “appears to be pausing” (the first upgrade in four months; 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” (unchanged; upgraded in March 2022; 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” (unchanged; upgraded in December 2021; downgraded in March 2022).
* 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” (upgraded in March 2022; downgraded in March 2020