Japan economy 'pausing' as gov't frets over slower exports, output+

TOKYO, Oct. 19 Kyodo -
Japan's economic recovery appears to have halted, the government said Tuesday,
downgrading its overall assessment of the economy for the first time in 20
months, citing weak exports and industrial output amid concern about the recent
sharp rise of the yen.
''The economic movements appear to be pausing recently,'' the Cabinet Office
said in its monthly report for October. Last month, it said the economy
''continues picking up'' while suggesting that the strength of the Japanese
currency could pose downside risks to growth.
Prime Minister Naoto Kan said the government is aiming to help the economy
overcome a standstill with a series of stimulus packages.
''We are now implementing economic stimulus measures in a seamless manner,
which include policies to create jobs and boost domestic demand,'' Kan told
reporters. ''I believe we can lead the economy to growth from a pause by
implementing those policies.''
The yen has risen to its highest level against the U.S. dollar in over 15
years, even as the Japanese government stepped into the currency market last
month for the first time in more than six years to stem the yen's rise, which
has adversely affected the earnings of the country's exporters.
Banri Kaieda, state minister in charge of economic and fiscal policy, said
separately, ''If the yen's rise is prolonged, (the situation) will become more
serious,'' referring to the likelihood that companies would refrain from
capital spending.
The report also said the government will place top priority on addressing
Japan's persistent deflation and work ''with the Bank of Japan to launch
vigorous and comprehensive policy efforts.''
Japan's exports, mainly composed of electronic devices and parts as well as
general machinery, ''have been weakening of late,'' it said.
Exports grew for the ninth straight month in August. But a government official
said September data could show clearer signs exports have fallen to Asia, where
production is slowing.
Slower exports drag down industrial output. The report said production ''has
been in a weak tone'' as government data showed it continued to decline in the
three months through August, with further falls expected for September and
October.
The sluggishness is due mainly to slower output by the auto industry, expected
to face sharp declines in domestic demand after the government ended last month
a subsidy program to encourage the purchase of environmentally friendly
vehicles introduced under its economic stimulus package.
''I think there's significant impact from the auto sector (on Japan's slowing
industrial output),'' Kaieda said. ''The global economy has been slowing.
Especially Asia as a whole has been slowing,'' he also said, referring to the
main reason for the slower exports.
The Cabinet Office lowered its assessment of exports for the second consecutive
month and that of industrial production for the first time in two months.
The downgrading of the two major components casts a shadow over the overall
economic outlook, the office said, as prolonged weakness in exports and
production could translate into sluggish corporate earnings and a weak appetite
for capital spending as well as shorter labor hours, which would result in
lower wages.
The downward revision to the overall assessment was the first since February
last year. The word ''pausing'' was last used in July 2008, two months before
the bankruptcy of U.S. investment bank Lehman Brothers Holdings Inc., which
triggered the global financial turmoil.
The government's move came amid rising expectations that the BOJ, which
recently sanctioned additional monetary easing to help bolster the economy,
will cut its estimates later this month for the country's economic growth and
inflation in the current and next fiscal years.
''There is no feeling of strangeness as for this downgrading, given the current
downward momentum,'' said Masamichi Adachi, senior economist at JPMorgan
Securities Japan Co., who added the government should immediately take action
to stimulate economic growth in the medium and long term.
The office maintained its evaluations for most of the other components in the
report.
Corporate earnings are ''improving,'' business investment is ''picking up'' and
employment conditions remain ''severe,'' it said. Although private consumption
is ''picking up,'' the report added that recent price developments show that
the economy is ''in a mild deflationary phase.''
The office also left unchanged its basic assessments of overseas economies.
While expressing concern about high unemployment and other risk factors for the
U.S. recovery, it pointed out that China and Europe are expected to tread
growth paths, although at slower paces.
==Kyodo
2010-10-19 20:35:26


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