Japan’s economic outlook downgraded amid domestic demand weakness

The Japanese government has revised its assessment of the nation’s economy, marking the first downgrade in ten months. This change in outlook indicates pausing in part” in Japan’s moderate recovery, primarily attributed to weakening domestic demand. This shift represents a departure from the previously consistent description of the economy as “recovering at a moderate pace” over the past six months.

A critical aspect of this revised assessment is the downgraded view on business investment, which has been adjusted for the first time in nearly two years. The government’s monthly report cites the slowing of global growth, particularly in China, as a significant factor contributing to the “pausing” in pick-up in business investment.

Despite this downgrade, the Cabinet Office maintained its assessment of other economic components. Private consumption is described as “picking up,” driven by a continued recovery in service demand. The report also highlights a positive trend in both industrial production and exports, which are showing signs of “picking up”.

The government’s report, however, underscores several downside risks to the Japanese economy. These include the impacts of aggressive interest rate hikes in other countries and the economic slowdown in China. Additionally, the government emphasizes the need for full attention to price increases, developments in the Middle East, and fluctuations in financial and capital markets.

Full monthly economic report of Japan’s cabinet office here.