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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