Japan downgrades economic outlook for 1st time in 3m

The Japanese government downgraded its economic outlook for the first time in three months in its monthly report for February, referring to signs of weakness in private consumption and production, Bloomberg reported.

The Cabinet Office reported on Wednesday that while certain areas of the economy are showing signs of sluggishness, the economy is recovering at a moderate rate. It is the first downgrade since November when a note was added indicating that the recovery appeared to be “partially” stalled.

According to the government’s most recent assessment, the economy is expected to continue to recover slowly after it unexpectedly entered a recession at the end of the previous year due to weak domestic demand.

For the first time in eleven months, the government lowered its production target, citing a decline in manufacturing activity and the temporary suspension of shipments and production by some automakers. Due to a scandal involving vehicle certification, Daihatsu Motor Co., a wholly-owned subsidiary of Toyota Motor Corp., was forced to halt domestic production and deliveries of several models in December.

In line with recent data, the report also included a lower assessment of private consumption, since household spending fell in December compared to the same month last year for the tenth time in a row.

The Bank of Japan is not happy about the downgrade as it considers when to raise interest rates for the first time since 2007. Last week, Governor Kazuo Ueda stated that the bank will keep closely analysing data to determine whether the steady economic recovery will continue.

An official in the government says that the government would eventually announce the end of decades of deflation during the monthly economic assessment. The official stated that the government’s announcement of victory over deflation need not coincide with the BOJ’s decision to end its negative rate to normalize policy.