The Japanese government retained on Monday its assessment that the domestic economy is recovering moderately but adopted a weaker view on corporate sentiment due to a firming yen and Britain’s vote to leave the European Union.
The Cabinet Office said in its report for the fifth straight month that the economy is experiencing “a moderate recovery, while weakness can be seen recently,” as consumer spending continues to lack strength but income and employment conditions are improving.
Reflecting adverse effects of the yen’s appreciation that tends to reduce profits of exporters, “firms’ judgment on current business conditions shows cautiousness further,” the office said. In June, the government said business sentiment showed cautiousness.
In addition to the stronger yen, the “Brexit” vote last month also increased uncertainty for long-term prospects for companies, as Britain’s exit from the European Union could lead to postponement in capital investment in the country, a Cabinet Office official said.
The downgrade came after the government slashed its view of corporate profits due to falling commodity prices and a firmer yen, saying their improvement “appears to be pausing, although they remain at a high level.”