TOKYO, Nov 16: The Cabinet Office on Tuesday downgraded its view on the Japanese economy, the first such downward revision since June 2003, saying the pace of the recovery is slowing.
"The economy continues to recover, while some weak movements have been seen recently," the government said in its regular monthly report for November.
The Cabinet Office downgraded its assessments of export activity and industrial production, saying exports were "weakening" and industrial production was "levelling off".
The report follows third quarter data which showed the world's second largest economy grew only 0.1 per cent from the second quarter for an annualized rate of 0.3 percent, well short of analyst forecasts for 0.5 per cent and 2.1 per cent.
The figures released Friday showed the economy dragged down by slower exports and a slowing in corporate expenditure although consumer demand continued strong and was emerging as a possible main driver for growth.
The Cabinet Office noted also that corporate profits as well as the labour market were "improving", and private consumption "increasing moderately". These descriptions were unchanged from the October report.
The November report also warned, with exactly the same wording used in October, that "attention should be given to the effects on the economy of developments in crude oil prices and to the world economic situation and other factors."
"In last month's report, our judgement was that domestic private demand as well as exports were increasing," a Cabinet Office economist said. "In contrast, in this month's report we changed our judgement on the estimate of exports, which we think are weakening."
The official contended, however, that the continued improvement in corporate earnings was spreading to household spending, which is also backed by improvements in employment conditions.
Exports in September fell a seasonally adjusted 2.1 percent from August, with the third quarter down 2.4 percent from the April-June period - the first decline in four quarters, official data showed.
Officials believe that Japanese exports were dragged down by a temporary dip in US consumer sentiment which begun in the second quarter and has since passed.
Industrial output in September fell a revised 0.4 percent from August, with the third quarter down 0.7 percent from the second - the first decline in the past five quarters.
"A decline in air conditioner production, semiconductor-making equipment production and electronics parts and devices used for mobile phone handsets and DVDs, for example, contributed to the overall decline of the September figure," said the Cabinet Office official.
In terms of corporate capital expenditure, the index of capital goods shipments fell a seasonally adjusted 3.2 percent in September from August, when it fell 2.3 percent.
The Cabinet Office official said, however, that the underlying trend was still for growth, noting that the index includes exports, thus failing to precisely convey domestic corporate demand.
Japan's GDP growth data for the July-September quarter showed that corporate capital spending declined 0.2 percent.
"We will carefully make a judgement on the situation of corporate capital expenditure in December when the revised July-September GDP data will be released in which the survey of demand-side - the Ministry of Finance's (quarterly) corporation statistics - will be reflected," said the official.
According to a survey by the Nihon Keizai Shimbun business daily, private-sector capital investment across all industries in the year to March 2005 is expected to rise 10.4 percent from a year earlier, the first double-digit increase in 14 years.-AFP
