World Bulletin / News Desk
Japan's government cut its assessment of the economy for the second straight month and warned that growth is pausing, signalling growing concern over the pain from the global slowdown and keeping the central bank under pressure to provide further monetary stimulus.
The Bank of Japan is widely expected to hold off on easing monetary policy at a meeting next week, though it is likely to offer a bleaker view of the world's third-largest economy, keeping alive market expectations that it will launch more stimulus soon.
"Japan's economic recovery appears to be pausing due to the global slowdown," the government said on Friday in its monthly report for September. That was a more cautious view than last month, when it said the economy was recovering moderately, albeit showing some weaknesses.
The downgrade underscores concern among policymakers that exports may not pick up in time to keep Japan's economy on track for a recovery as Europe's sovereign debt crisis hits global trade and delays a pickup in big markets like China.
The government last made consecutive cuts in its economic assessment in late 2008 through early 2009, when Japan was suffering from the fallout of the global financial crisis triggered by the collapse of Lehman Brothers.
In the September report, the government maintained its view that exports are weakening and cut its assessment on output, citing the impact of slowing global demand and fading support from government subsidies for low-emission cars.
It also revised down its assessment on private consumption, casting doubt on the central bank's projection that robust domestic demand will offset some of the weakness in exports.
"Private consumption is almost flat with some weakness seen lately," the report said, a bleaker view than last month when it said it was increasing moderately as a trend.
Japan's economy has outpaced growth of most G7 countries on robust private consumption and spending for reconstruction from last year's earthquake.
But policymakers are becoming less convinced of Japan's recovery prospects as global weakness persists and a strong yen weighs on exports, which slumped the most in six months in July. Factory output also unexpectedly fell in July as the boost from government stimulus for low-emission cars begins to fade.
Data this week showed the economy grew less than initially estimated in the second quarter and analysts now expect growth to stall for most of this year as Europe's sovereign debt crisis drags on and China's economy continues to lose steam.
Prime Minister Yoshihiko Noda, who faces a party leadership race later this month, said the government will consider compiling an extra budget to ease the pain from a strong yen, although market players say the spending won't be big enough to have a sizable impact on the economy.
The government and the central bank now forecast economic growth of 2.2 percent in the business year to March 2013. Many analysts originally had similar projections but are slashing their forecasts to below 2 percent. The BOJ may do the same when it issues new long-term growth forecasts next month.