The government on Wednesday downgraded its basic assessment of the Japanese economy with production weakening amid a slowdown in China and other emerging markets.
The world’s third-largest economy “is on a moderate recovery, while weakness can be seen in some areas,” the Cabinet Office said in its monthly report, citing sluggish industrial output in addition to already weakening exports.
The downgrade came after the government effectively slashed the assessment last month, saying “slowness can be seen in some areas” such as private consumption and exports, while retaining the view that the economy was on a moderate recovery path.
As the government avoided commenting on whether the pace of recovery was decelerating or not last month, it said in the latest report the downward revision was made for the first time in 12 months since October 2014.
By category, the government lowered its assessment of production, saying it “is in a weak tone recently” after data showed Japan’s industrial output fell in August for the second consecutive month. It said the previous month that production was “flat.”
A Cabinet Office official said output of production machinery has been weakening amid slumping exports to the rest of Asia. Production of electronic components and electrical machinery also declined.
The government maintained its assessments of other categories including private consumption, which is holding “firm as a whole,” as spending picked up in August due partly to hot weather.
It also maintained its view of business investment as “picking up generally” after the Bank of Japan’s Tankan business sentiment survey showed solid corporate investment plans, though machinery orders declined for the third consecutive month in August.
Looking ahead, the government said the Japanese economy is expected to recover but warned of downside risks including the slowing in emerging Asian markets and the possibility of a U.S. interest rate hike this year in the process of normalizing monetary policy.