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Japan gov't keeps economic view in Nov., wary of material costs hike

People walk by an electronic stock board of a securities firm in Tokyo, on Nov. 24, 2021. (AP Photo/Koji Sasahara)

TOKYO (Kyodo) -- Japan's government on Thursday retained its view that the economic recovery from the coronavirus fallout is showing "weakness," while expressing wariness over the impact ahead of recent higher raw material costs including crude oil prices.

    "The Japanese economy continues to show weakness in picking up, although the severe situation due to the novel coronavirus is gradually easing," the Cabinet Office said in its overall assessment for November, retaining its view for the second straight month.

    By component, the office upgraded its view for private consumption for the first time in 13 months, saying it shows "movements of picking up, while some weakness remains," after describing it as showing "further weakness" in the previous month.

    The improvement reflected a pickup in consumer sentiment after the government on Oct. 1 lifted in all parts of Japan COVID-19 states of emergency that had asked people to refrain from nonessential outings, and eased on Nov. 1 its 10,000-specator attendance limit for large-scale events.

    Despite an upgrade in consumer spending, the overall assessment was retained as the positive factor was offset by a downgrade in views for exports and industrial production due to disruptions in supply chains that have forced Japanese automakers to reduce output.

    Exports in November have been "almost flat," revised downward for the second consecutive month, due to a slowdown in the Chinese economic recovery and falls in exports of auto-related products, it said. In the previous month, the government said they were "increasing at a slower pace."

    The view on industrial production was downgraded for the first time in two months, with the report saying the pickup "appears to be pausing," partly due to sluggish exports of production machinery for Asian countries.

    A Cabinet Office official said that although new car sales continue to decline amid a prolonged global semiconductor drought, expenditure on dining out and leisure activities such as going to movies and concerts is currently showing a modest recovery.

    Looking ahead, the office said the economy is expected to pick up as "economic and social activities move toward normalization," but full attention should be given to a further increase in downside risks due to "supply-side constraints and raw material prices."

    The official said the effect of rising raw material costs, which are feared to squeeze Japanese companies' profits, "may become more noticeable in earnings reports for the October-December period for listed companies."

    He added the impact of such cost increases to consumers must be carefully watched as well, as electricity bills are expected to rise further and many companies including daily goods makers have announced price hikes, which could dampen their purchasing power.

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