TOKYO (MNI) – The Japanese government on Wednesday left its overall
economic assessment unchanged in its monthly report for December but it
revised down its view on business sentiment after the Bank of Japan’s
Tankan survey showed weaker-than-expected results.

The global slowdown triggered by the European sovereign debt crisis
as well as the strong yen and weak share prices continue to pose
downside risks to sustained growth, it said.

“The Japanese economy is still picking up slowly, while
difficulties continue to prevail due to the Great East Japan
Earthquake,” the government said.

But the government revised down its assessment of corporate
sentiment for the first time in 12 months.

“Firms’ judgement on current business conditions shows a small
improvement although that for large manufacturers is deteriorating.
Overall, firms are cautious about the immediate future,” it said.

Last month, it said, “Firms’ judgement on current business
conditions is improving. However, small and medium-sized enterprises are
cautious about the immediate future.”

The downgrade reflected the BOJ Tankan results released last week
that the diffusion index of major manufacturers stood at -4 in December,
down from +2 in the September report, while the indexes for large
non-manufacturers and small firms improved.

Looking ahead, the government is more cautious about growth
prospects, saying, “Reflecting the effect of policy measures, the
Japanese economy is expected to continue to pick up moderately.”

Last month, it said, “Reflecting the supply chain recovery (from
the earthquake) and the effect of policy measures, the Japanese economy
is expected to continue to pick up.”

Shigeru Sugihara, director of macroeconomic analysis at the Cabinet
Office, explained that the positive effects of the quick recovery from
the March earthquake disaster have waned.

Meanwhile, the drag from supply chain constraints caused by major
flooding in Thailand, a key production base for many Japanese firms, has
also dissipated, he said.

tokyo@marketnews.com
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