The Japanese government downgraded its view on the economy slightly on Tuesday, citing weaker exports and output, but it said a recovery was continuing due to steady domestic demand, in terms of both personal consumption and capital spending. "The economy continues to recover, while some weak movements have been seen recently," the government said in its monthly economic report.
It said last month that the economy was steadily recovering. While it maintained that overall view, the addition of the phrase about "some weak movements" made it the first downgrade since June 2003.
"The larger picture of economic recovery is unchanged, but there are some weak movements which constituted a downgrade," Economics Minister Heizo Takenaka told a news conference after the report's release.
Gross domestic product (GDP) data last Friday showed growth virtually ground to a halt in July-September, with the economy expanding by a mere 0.3 percent in real annualised terms.
The "weak movements" cited in the government report were attributed to sluggishness in exports and industrial production, prompted by slower demand from the United States and China and adjustments in the high-tech sector.
Japanese exports fell 2.4 percent by volume in July-September from the previous three months, the first drop in four quarters.
While Japanese exports to Asia grew overall, those to China declined, partly due to the impact of credit tightening policies adopted by the Chinese authorities.
Industrial production fell 0.7 percent in the three months to September, the first decline in five quarters, due to slower demand for exports and at home of digital consumer goods such as flat-panel televisions.
Asked if the weakening in exports and production would be short-lived, Takenaka said the government was monitoring inventory adjustments in the information technology sector.
But he expected a global economic recovery to continue.
On the bright side, consumption remained firm on the back of improvements in job conditions and capital spending was helped by robust corporate profits, the report said.
Personal consumption was the sole factor boosting growth in July-September, rising 0.9 percent from the previous quarter.
The capital spending component of GDP fell 0.2 percent from the previous quarter, while machinery orders, a leading indicator for capital expenditure, were down 8.4 percent in July-September.
However, the Cabinet Office expects capital spending to be upgraded when demand-side factors are included in revised GDP data due on December 8.
Looking ahead, the government reiterated that it expected the recovery to continue due to steady domestic demand but that crude oil prices and overseas economies needed watching.
Asked about the recent rise in the yen to around seven-month highs against the dollar, Takenaka said: "We are always paying close attention and keeping in mind the impact of capital market movements, including those of currencies."
On the impact of a deadly earthquake in the Niigata region of northern Japan in October, Takenaka said the macroeconomic impact would not be large.
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