Japan cuts economic view, 1st in 10 months, on weak domestic demand
TOKYO (Kyodo) -- The government on Wednesday downgraded its assessment of Japan's economy for the first time in 10 months, saying it is recovering moderately but "appears to be pausing in part" on weak domestic demand, a worrying sign before new inflation relief steps are rolled out.
Among key components, the Cabinet Office cut its view on capital spending, the first in nearly two years, noting in its monthly report that the recent pick-up is "pausing" partly due to slowing global growth, particularly in China.
Ideas:
The Japanese government, like many governments, never wants to be a complete negative report about its economy, so it softens the language so not to score the financial markets.
"Appears to be pausing in part" is a softer way to say what might really be going on. But all economies go through business cycles which are both positive and negatives actions in an economy.
Weak domestic demand of course its most likely related to the continued inflation in Japan, as consumers continue to decrease their spending on non-essential items.
And there is the China situation, which is going through some kind of transition, from maybe a developing economy to the advanced economy stage, which is going to take some time.
Article:
The latest assessment came after Japan's economy marked its first contraction in three quarters in July-September, with gross domestic product falling at an annual real rate of 2.1 percent, as capital spending and private consumption, both key gauges of domestic demand, fell and export growth slowed.
Until October, the government described the economy as "recovering at a moderate pace" for six consecutive months.
Ideas:
Capital spending is never linear, meaning its not positive every month, as there are months of positive spending and months of less positive spending.
Even GDP growth can go through periods of the business cycle where there is positive growth and periods of not so good growth. The key is to look at the entire year and not just one month or even one quarter.
But even at 2.1 percent for the annual rate, if the Japanese can maintain that level, that would be a positive for the Japanese economy. But even if it was falling, as mentioned, the Japanese economy, for the most part, is still a stable economy, even though it might not grow as fast as investors want.
Again, private consumption, or consumer spending is constrained by the continued inflation in the Japanese economy, as Japanese consumers cutback on spending to save money.
And the same with capital spending as companies too are constrained with higher energy costs and raw material costs.
Article:
Diet deliberations began this week on a 13.20 trillion yen ($89 billion) extra budget for the current fiscal year to next March to fund an economic package aimed at easing the pain of rising prices on households and navigating the economy through the cost-of-living crisis to a longer-term growth path.
While corporate earnings have been robust and Japanese firms have bullish investment plans for fiscal 2023, this has yet to translate into rapid growth in capital spending. Previously, the view on spending by firms was cut in December 2021.
Ideas:
The Japanese economy, and inflation has been continuing for about 2 or 3 years now. Maybe the Japanese government should have implemented some kind of extra budget to help the cost-of-living crisis.
Whenever the package is finally approved, the most important thing is for households can easily get the needed funds, without a lot of unneeded paperwork.
Corporate earnings might be robust, but Japanese companies, for the most part, are not increasing wages of their workers as a way to reduce inflation stress.
Just because a company increases capital spending, it doesn't mean it will translate exactly to improved economic growth as their is a lag time for the company actions to translate into economic growth.
Article:
The Cabinet Office retained its assessments on other components in November.
Private consumption is "picking up," supported by a continued recovery in demand for services, even as rising prices of everyday goods weigh on demand and consumers have become more frugal.
Both industrial production and exports show signs of "picking up," the report said.
Ideas:
In one part of this article it says private consumption is down or falling but here it says private consumption is "picking up." Its possible that the report they are using can say both at the same time.
Industrial production is also very linear as there are months of good growth and months of not so good growth.
Exports, for the most part, are a factor of global demand as Japanese exporters depend on on the global economy such as in China and the US. Most likely exports to China are down, while exports to the US are up.
Japanese consumers might be cutting back on spending on everyday goods, but maybe they have increased their spending related to services, which might include hotels, restaurants and so on.
Article:
The government continued to warn of downside risks to the economy from the impacts of aggressive interest rate hikes overseas and a slowdown in the Chinese economy.
"Full attention should be given to price increases, the situation in the Middle East and fluctuations in the financial and capital markets," the office said.
A persistently weak yen is expected to keep raising energy import costs to the detriment of resource-scarce Japan, which will then be passed on to consumers.
Ideas:
The US Federal Reserve, has decided, again, not to increase the key rate, for maybe the third or fourth time, which is good sign the US economy is improving.
The China situation might take some time for it to work through it challenges, and as such Japanese companies should maybe downsize their estimates in China for the time being.
A weak yen is both a positive and negative for the Japanese economy. For example its a positive for Japanese exporters, who can get more for the products with a weak yen, but its a negative for importers, as a weak yen increase import prices, and overall for the Japanese economy the weak yen is a negative.
So the Bank of Japan has to decide what is best for the Japanese economy, as Japanese exports are the major driver of economic growth while the domestic economy, while very important, might be seen, at this time as a major problem.
Article:
Under the recently compiled inflation-relief measures, the government will extend existing subsidies to lower fuel costs for consumers until next spring. Japan's inflation has been easing from its peak as the boost from higher energy and raw material costs has lost steam.
The government retained its assessment of the global economy, saying that it is "picking up despite weakness in some regions."
Ideas:
Continued inflation-relief measures are probably needed as this time, even though higher energy costs as been reduced some, they might still be too high for Japanese households.
The global economy might be picking up but maybe not so in Europe and or course not so in China. At the present time, the US economy, again, seems to be leading world it its recovery and growth, but that can't be said of the rest of the world.
Overall, the Japanese economy might be improving but it has a long way to go to before its out of its deflation mindset or continued negative economic growth.
A lot will depend on what happens in April of 2024, the new fiscal year in Japan, with large company wage increases and or will small and midsize companies also increase wages this time, which they didn't do in 2023.
Have a nice day and be safe!
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