— Cabinet Office: Exports, Production Weaker
TOKYO (MNI) – The Japanese government on Tuesday revised down its
overall assessment of the economy for the first time in 20 months since
February 2009, saying it is “pausing” after recent improvement as slower
global growth is denting demand for electronics exported via Asian
countries.
The last time the government said the economy was “pausing” was in
July 2008, two months before the collapse of the U.S. investment firm
Lehman Brothers, which triggered the global financial crisis and
recession.
Meanwhile, the longest for which the government described the
economy as “pausing” was a six-month period from July to December 1995,
when Japan was hit by the yen’s rapid rise to record highs against the
dollar, but it was followed by a rebound in economic growth.
“The appreciation of the yen will dampen sentiment,” Fumihira
Nishizaki, director of macroeconomic analysis at the Cabinet Office,
told reporters.
“But the most recent rise in the yen won’t hit export volume
immediately as companies would not raise local prices so quickly and
they have hedging against currency fluctuations,” he said. “The yen’s
rise will have a gradual impact on corporate profits.”
The government dropped its recent reference that “the economy
continues picking up and movements towards a self-sustaining recovery
are seen” but Nishizaki said the possibly of a self-sustained recovery
has not disappeared completely.
The main downside risk is that prolonged weakness in exports and
production would cloud prospects for corporate profits and a continued
drop in output would prompt firms to cut overtime, he noted.
The government repeated that the economy “remains in a difficult
situation, with a high unemployment rate,” although recent data have
shown that the unemployment has fallen slightly and job creation is
emerging.
Looking a few months ahead, the government maintained its cautious
optimism, projecting a modest rebound in production and consumption.
This is in line with the latest outlook provided by the Bank of Japan.
“As for short-term prospects, although some weak movements can be
seen for a while, the economy is expected to be picking up, reflecting
improvement in overseas economies and the effects of policy measures,”
the Cabinet Office said in the October report.
The government downgraded its view on production for the first time
in two months, saying, it “has been in a weak tone.”
Japanese industrial production fell 0.5% in August from July,
revised down from a preliminary 0.3% drop and marking the third straight
monthly decline after -0.2% in July and -1.1% in June.
As seen in the initial reading, output was also dragged down by
lower demand for general machinery, liquid crystal devices and trucks,
which more than offset higher production of medicine, air conditioners
and aluminum cans for beverages.
METI reported last month its survey of firms’ forecasts showed that
production will dip by 0.1% m/m in September — revised down from the
0.2% rise estimated in last month’s survey — before plunging by 2.9% in
October (first estimate).
Automobiles and electronics, which carry a heavy weighting in the
index, are pulling down overall industrial output while the automobile
market is expected to be weak in October and demand for semiconductors
is falling in both domestic and overseas markets.
Motor vehicle sales have been supported by tax breaks and subsidies
for buying low-emission vehicles but automakers are concerned that
demand will shrink in the coming months since the government ended those
subsidies in September as planned.
The reward program for purchases of greener consumer electronics
will end next March, which might trigger a temporary jump in demand
early next year.
The government also downgraded its assessment of exports this
month, which was the second straight month of a downward revision. It
now said exports “have been weakening of late.”
Last month, it said they were “increasing at a slower pace
recently.”
Japan’s trade surplus unexpectedly shrank by 37.5% in August from a
year earlier to Y103.22 billion, the first year-on-year drop in 15
months, with the pace of export growth decelerating for the sixth month
in a row.
Japan has posted a trade surplus for 17 months in a row, with the
country’s last deficit, of Y5.41 billion, recorded in March 2009.
tokyo@marketnews.com
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