Japan downgrades assessment to ‘worsening’

TOKYO: Japan yesterday downgraded its assessment of the economy for August for the first time in four months, saying it “is worsening,” hit by sluggish production and exports due partly to lingering USChina trade tensions.

The downgrade comes at a time when concerns are growing over the outlook for the world’s thirdlargest economy as the consumption tax hike earlier this month could dampen private consumption.

The Cabinet Office said its coincident index of business conditions for the reporting month fell 0.4 point from the previous month to 99.3 against the 2015 base of 100, the lowest level since September 2016.

After using the phrase “worsening” — the most pessimistic expression adopted by the government — for March and April, the office upgraded the view, saying that downside movements had come to a halt in May and the two following months.

The latest downgrade of the evaluation followed the release of weak industrial output, shipment and employment data for August.

As “worsening” indicates Japan is highly likely to have fallen into recession, the assessment appears to contradict the government’s official view that the economy has been recovering at a moderate pace, supported by solid domestic demand, as shown by its monthly economic report.

Asked about the diverging views, a government official who briefed reporters said the evaluation was made automatically based on the movements of the coincident index consisting of indicators reflecting the present economic condition, while the monthly report was a broader evaluation of various economic activities and trends.

The Cabinet Office also said the leading index of business condition, which predicts the trend in the coming months, dropped 2.0 points from the previous month to 91.7 in August, the lowest level since November 2009.

Last Tuesday, the consumption tax rate was raised to 10% from 8% to help pay for swelling social security costs amid the rapid graying of the country’s population.

Taro Saito, executive research fellow at the NLI Research Institute, pointed out that it was not in doubt that Japan’s economy had already waned even before the consumption tax rise. “As the economy is expected to see a further downswing after the tax hike, the assessment of worsening will likely continue for the time being.”