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Japan says economy “worsening” for 1st time in over 6 years

  • May 13, 2019
  • , Kyodo News , 9:43 p.m.
  • English Press

TOKYO — Japan lowered its assessment of the economy on Monday, using the expression “worsening” for the first time in more than six years, amid slowing demand for exports of automobiles and manufacturing equipment.


The Cabinet Office said its coincident index of business conditions for March fell 0.9 point from the previous month to 99.6 against the 2015 base of 100.


The downgrade is a major setback for Prime Minister Shinzo Abe as his government is poised to raise the consumption tax in October to 10 percent from the current 8 percent, a move that could dampen consumer spending and hurt the world’s third-largest economy.


In describing the economic situation, the Cabinet Office chose the weakest of its five expressions. The term “worsening,” which was last used in January 2013, could signal that the economy is heading into recession.


The lowering of the assessment, the second in 2019, came after a recent series of sluggish economic data, including a 0.9 percent drop of industrial output in March, amid protracted trade tensions between the United States and China.


An official who briefed reporters said sluggish shipments to China and some other parts of Asia of equipment used to produce semiconductors took a toll on the results for the reporting month, while pointing out that employment data are stronger than those during previous recessions between 2008 and 2009 as well as in 2012.


Chief Cabinet Secretary Yoshihide Suga reiterated the view, saying, “The fundamentals that support domestic demand, including employment and income remain firm.”


To raise the consumption tax as planned, the government will focus on managing the economy appropriately, the top spokesman told a press conference.


In January, the Cabinet Office cut its economic assessment from “weakening” to “signaling a possible turning point” in the economy. The move raised doubt about the government’s assertion that growth in the country from December 2012 had likely surpassed the Izanami Boom, a 73-month streak from 2002 to 2008.


A government panel will formally decide the length of the economic cycle after analyzing more data, a process that can take over a year.


Analysts said the panel may not judge the “worsening” situation as a recessionary phase, if an economic slowdown proves to be short-lived.


However, the leading index of business conditions, which predicts the trend in the coming months, was also down 0.8 point at 96.3.


Attention is now focused on whether the government will revise its official view of economic conditions in its monthly economic report for May, to be released later in the month.


In the monthly report, the government has maintained that the economy is “recovering at a moderate pace,” but it added in March that “weakness is seen recently in exports and industrial production in some sectors.”


Corporate leaders and economists remain divided on whether the Japanese economy has entered a recessionary phase and the government should increase the consumption tax.


Takeshi Minami, chief economist at the Norinchukin Research Institute, said the government is likely to carefully examine the poor results together with other economic data, including gross domestic product for the January-March quarter to be released next Monday, in determining whether to go ahead with the planned consumption tax hike.


“Judging from the recent data (on the Japanese economy), it would not be the right time to raise the tax,” he said.

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