Government maintains positive outlook on Japanese economy

On Monday, the government maintained its outlook on the Japanese economy, describing it as recovering moderately despite some signs of stalling. This more optimistic view on production follows an increase in output after a drop caused by a data-rigging scandal in the automotive sector, which had previously hampered economic growth.

The Cabinet Office stated that moderate economic growth is expected to continue, but cautioned about potential negative impacts from inflation, the Middle East conflict, and fluctuations in currency and capital markets.

“Industrial production shows signs of picking up recently, although manufacturing activities declined due to the effects of suspending production and shipments by some automotive manufacturers,” the monthly economic report noted, marking its first upgrade in a year.

Japan’s economy experienced an annualized real contraction of 2.0 percent in the January-March period, marking the first negative growth in two quarters. However, economists anticipate a rebound in the April-June quarter.

Rising prices of everyday goods have negatively impacted private consumption, which constitutes over half of the economy. Additionally, a safety data scandal at Daihatsu Motor Co., a subsidiary of Toyota Motor Corp., led to temporary production halts at some of the parent company’s group firms, affecting the broader auto industry.

“The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing,” the report reiterated, using the same expression for the fourth consecutive month.

Most assessments on key economic components, such as private consumption, business investment, and exports, were retained. However, the government upgraded its view on imports for the first time since April 2023, citing increased shipments from the United States and Europe. The assessment on public investment was also upgraded as the government increased spending on public works.

The report noted that private consumption and exporters appear to be “pausing for picking up,” while business investment shows “movements of picking up.” Additionally, the government revised its wording on corporate goods prices, which impact consumer prices with a delay, to “rising moderately” from “flat” in the previous report, marking the first change in eight months.

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