Japan Downgrades Assessment of Economy

Japan downgraded its overall assessment of the economy in September for the first time in five months, as poor summer weather weighed on consumption, raising further questions over the viability of pushing ahead with a second sales-tax increase after the first one in April hurt demand and stalled growth.

In its monthly economic report released Friday, the government cut its assessment of private consumption, saying it appeared “to be pausing recently” as typhoons and record downpours pummeled Japan this summer. While it said the economy was still on the path to a “moderate recovery, ” attention should be paid to the lingering impact of the April 1 tax increase to 8% from 5%.

Economists and policy makers are closely following how the economy is responding to the higher tax rate, following a spending surge before its implementation that saw the economy grow 6% in the January-March quarter. A pullback in demand, however, saw the economy shrink 7.1% in the April to June quarter, heightening concerns that the tax rise is taking a greater-than-expected toll on the economy.

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