TOKYO (AFX-ASIA) - The Cabinet Office, formerly known as the Economic Planning Agency, left its key economic assessment unchanged in its January report, saying that Japan is still on a path towards an autonomous recovery led by the corporate sector.
"Activities on the whole continue to rise modestly. The strength is seen mainly in the corporate sector, where the autonomous nature of the recovery has become increasingly evident," the Cabinet Office said in the report presented to the cabinet this morning.
The Cabinet Office has maintained the same assessment for three consecutive months.
The Cabinet Office upgraded slightly its analysis on housing construction and public sector investment, but Cabinet Office economist Haruhito Arai downplayed the significance of these developments. "We just referred to single month development, but the underlying trend has not changed at all," he said.
The Cabinet Office said in the January report that "housing investment increased somewhat, led by an increase in starts of owner-occupied houses and those for rent."
This compared with the assessment in the December report that "housing investment declined somewhat, as starts of owner-occupied single houses, after rising for the past few months, fell."
Referring to public sector investment, the Cabinet Office said in the January report that public works contracts, though stagnant, are showing year-on-year increases, upgrading from the previous month's assessment that public investment was stagnant.
The Cabinet Office downgraded its assessment on industrial production activities amid falling external demand reflecting the slowdown of the global economy.
"Industrial output continues to rise, but has been slowing down," the Cabinet Office said, downgrading its assessment from the previous month that output is rising solidly.
Arai, however, played down this move, adding that the office had been well prepared for these consequences.
"When the Asian economy entered inventory adjustments, we knew exactly what would come after," he said.
Data release by the Ministry of Economy, Industry and Trade showed that the nation's industrial output would rise only 0.5 pct quarter-on-quarter in the three months to December from a 1.6 pct gain made in the previous quarter to September.
The Cabinet Office, meanwhile, left unchanged its assessments on consumer spending and corporate capital spending -- the key growth drivers for the nation's GDP.
This came after the recent data release showed contradictory developments on spending behavior.
The data release by the Ministry of Public Management, Home Affairs, Posts and Telecommunications showed that real household spending, excluding outlays on autos, housing and allowances, fell by 3.1 pct month-on-month in November following a 1.5 pct rise in the previous month.
"This was disappointing," Arai said, but added that this did not prompt downward revision of the overall assessment, citing strong showing of spending data on autos and consumer electronics data. For instance, retail sales of consumer electronics equipment rose 12.0 pct year-on-year in November following a modest 4.2 pct gain in October, as "sales of almost all products, excluding video tapes and word processors, rose," Arai said.
With regard to private sector capital spending, the Cabinet Office said it continues on a rising path, led by active investment by manufacturers, although recent data showed that machinery orders fell 2.9 pct month-on-month.
"The machinery data means that there is just a little bit of wariness over the trend in six to nine months from now," Arai said. The Cabinet Office, however, cited the prolonged decline on local asset markets and increased uncertainty over prospects for the U.S. economy as sources for concerns.
"These developments did not affect our assessment this month. But we should pay close attention.... as these developments are worrying factors," Arai said.
Arai said he is still unable to be fully confident that the U.S. economy will begin to pick-up again following the surprising rate cut by the U.S. FOMC at the beginning of this year.
"We can now expect that the rate cut will guide (the U.S. economy to) a soft-landing. But at the same time, we can take the view that the (slowdown in the) economy was so severe that the rate cut was needed."