Japan sees weakness in economy but raises business spending view
The government improved its view on capital expenditure, ater raising it in January and February, saying it has been picking up, reflecting an optimistic outlook on corporate spending
Japan raised its view on capital spending for the third time this year in its economic report for April, while it retained its assessment that overall economic conditions were showing weakness from the coronavirus pandemic.
Authorities also warned atention should be paid to the downside risk a coronavirus resurgence at home and abroad poses to the economic outlook, which is threatening to leave its mark on the world’s third-largest economy longer.
The government is expected to issue a third state of emergency on Tokyo and three western prefectures this week, underscoring their struggle to deal with a surge in new COVID-19 cases.
The move, which may come as early as Friday, could weigh especially heavy on consumption if the authorities ask retailers to close during the Golden Week holidays, which start next week and run through early May.
“The economy shows some weakness, though it continued picking up amid severe conditions due to the coronavirus,” the government said in the report.
Among its key economic elements, the government improved its view on capital expenditure, ater also raising it in January and February, saying it has been picking up, reflecting a more optimistic outlook on corporate spending.
“A reason why it was upgraded is because machinery investment has been improving since the later half of last year,” a government official added.
The government also lowered its view on public spending, saying it firmly remained at a high level, which was a notch below the previous month’s assessment that described it as holding up strongly.
Ater coming out of last year’s deep recession due to strong exports, which fuelled an output bounce, analysts expect Japan’s economy to have contracted in the first quarter as private consumption took a hit from emergency steps imposed in January.
The government will release preliminary first-quarter gross domestic product figures on May 18.
Japan’s government is expected to issue a third state of emergency on Tokyo and three western prefectures that could last for about two weeks, according to media reports, underscoring its struggle to deal with a surge in new COVID-19 case numbers.
Some analysts say the decision, expected to be made as early as Friday, may push Japan back into recession if retailers are asked to close during the Golden Week holidays, which start next week and run through early May.
A renewed state of emergency would also cast doubt on whether Tokyo can host the Olympics in July, despite Prime Minister Yoshihide Suga’s assurances it will proceed as planned.
“The risk of a double-dip recession has clearly heightened,” said Hiroshi Shiraishi, senior economist at BNP Paribas Securities. “The impact of imposing curbs on Tokyo and Osaka alone would be quite big.”
With thousands of new cases resulting from highly infectious strains of the virus, Suga said on Wednesday the government will decide this week whether to declare the state of emergency for major parts of the country.
If adopted in all four regions that made requests, the emergency measures would cover close to a quarter of Japan’s population of 126 million and roughly 30% of gross domestic product (GDP).
The government is considering imposing state of emergency curbs from April 25 through May 11, Jiji news agency reported.
Other media have raised the possibility of stronger curbs than those issued last time in January, such as requests for department stores and other big retailers to close. “We need to take stronger and more targeted steps than before including requests (for shops) to close,” Economy Minister Yasutoshi Nishimura was quoted as saying by Kyodo news agency on Thursday.
“The timing is not good,” as it would hit service spending during the spring leisure season, said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.
Tsunoda cut his forecast for second-quarter GDP to a 0.5 per cent quarter-on-quarter rise, half the previously projected pace.
Japan’s economy has emerged from last year’s severe slump thanks to robust exports.
But analysts expect GDP to have shrunk in the first quarter due to the hit to consumption from the second emergency curbs that rolled out in January and say a second consecutive contraction in Q2 that would constitute a recession is possible.
While fresh state of emergency curbs likely won’t trigger additional monetary easing, it could affect the Bank of Japan’s quarterly growth projections due out next week, analysts say.
“Given prospects of strong global demand, the BOJ probably won’t make big changes to its forecast of a moderate recovery,” said Izuru Kato, chief economist at Totan Research.