OKYO (AFX-ASIA) - The Cabinet Office left unchanged its key economic assessment, saying the economy continues to deteriorate, reflecting the continued sluggishness of the corporate activity. "The economy continues to deteriorate," the Cabinet Office said in the September economic report, submitted to the cabinet and unchanged from the assessment in the August report.
"While economic activity continues to deteriorate, the pace of the ongoing deterioration has not gained stronger momentum," Cabinet Office economist Haruhi to Arai said, explaining the reason for maintaining the assessment.
The Cabinet Office also warned of the increased risk surrounding already flagging economic activity in Japan following the Sept 11 terrorist attacks on the US.
"As for short-term prospects, concerns have intensified with the adverse effects of the series of terrorist attacks in the US on the global economy," the Cabinet Office. Arai said a full picture of the impact of the Sept 11 terrorist attacks and the retaliation by the US and its allies against Afghanistan remains to be seen. "We did not see serious confusion or collapse of the global capital markets, which were our initial concerns, thanks to policy coordination by each country," Arai said.
"Crude oil prices, which could harm economic activity, have come down to levels seen prior to the terrorist attacks. "From now on, we need to pay closer attention to how actual economic activity progresses, US consumer spending in particular," Arai added.
Arai also cautioned of the underlying risk of for Japanese exports of a further slowdown in the US following the Sept 11 attacks. "Exports have fallen considerably in recent months so it is hard to think that the pace of decline will accelerate further ... but the sluggish economic performance in the US will certainly delay any rebound of export activity in Japan."
The Cabinet Office downgraded its assessment on the trend of corporate profit and sentiment in light of the poor outcome of the last Tankan survey by the Bank of Japan.
In the survey, the large manufacturers' diffusion index (DI) came in at minus 33, compared with market forecasts of minus 24-31 and minus 16 in the June report.
The large non-manufacturers' DI came in at minus 17, compared with market forecasts of minus 15-20 and minus 13 in the June report. "It seems that hopes for a recovery in the second half led by a rebound in the US economy, which was seen in the June report, have receded," Arai said.
The Cabine Office also pointed to the spill-over of sluggish corporate activity into the household sector, saying that some consumer spending data are showing "weakness recently," citing poor home electronics and auto sales figures. "However, it is still hard to judge whether consumer spending has entered a falling cycle," Arai said. The Cabinet Office said that despite some weakness seen in recent data, the overall trend of consumer spending is "flat."