10 August 2001, 12:09  Japan Cabinet Office downgrades assessment; economy deteriorating further

TOKYO (AFX-ASIA) - The Cabinet Office downgraded its key economic assessment, saying "the economy is further deteriorating" from last month due to falling capital expenditure, as well as substantial declines in exports and industrial output. "The downgrade is due to the continuing deterioration of Japan's economy. In addition, this deterioration is getting stronger," Cabinet Office economist Haruhito Arai said. The Cabinet Office also attributed the downward revision to continued high unemployment and declining housing construction. "The unemployment rate has stayed high, while job offers and overtime hours worked are edging down," it said. It maintained the private consumption assessment saying: "Private consumption has remained broadly flat with some weakness in recent months." However, Arai added that weakening in this sector is getting stronger, citing recent poor economic indicators such as retail sales and household spending. "I don't think the extremely hot summer seen this month will push up overall private consumption. We should not view private consumption positively," he said. "The deteriorating employment situation is cutting household spending. As a result, overall capital expenditure is falling," Arai said. The Cabinet Office downgraded most other economic parameters, including capital expenditure, industrial production, exports and housing construction. On capex assessment, it said "business investment is falling", adding "exports and industrial production have fallen substantially." It added: "Housing construction is declining." The office maintained its assessment for inventories, saying simply that they were rising, but Arai noted some concerns as inventories in industries other than information technology have started increasing. "We see that the increase in IT-related inventories has peaked out but other industries such as steel and chemicals have started rising," he said. "We forecast production cuts here will start around end of the summer and autumn." The Cabinet Office said the rise in business inventories is a near-term worry. "Short-term prospects involve some concerns such as the slowdown of the world economy and increases in business inventories," it said. Arai said Japan is balanced between the possibility that rising inventory would be contained within the IT-related sector or would push down overall capex, affecting employment and leading to a decrease in private consumption. "I think Japan is currently in the middle of these two scenarios," he said. He said the Cabinet Office has not yet decided which words it will use if it decides to downgrade its overall economic assessment further. "But we don't expect we will upgrade our economic assessment for the time being," he added.

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