Japan says economy in modest recovery, caution over global slowdown

TOKYO (Reuters) – Japan kept its assessment of the economy unchanged in February as consumer spending remained on a recovery trend despite soft exports and factory output due to the global economic slowdown.

The government also retained its caution over the impact of global monetary tightening, price hikes and supply constraint in its monthly report. It will continue to closely monitor financial market fluctuations and China’s COVID-19 situation, the report said.

The new economic assessment comes after data last week showed Japan’s economy averted recession but rebounded much less than expected in the fourth quarter last year as business investment slumped.

“The economy is picking up moderately, although some weakness is seen recently,” the Cabinet Office said in its monthly economic assessment, which was unchanged from January.

Consumer spending, which accounts for more than half of Japan’s gross domestic product (GDP), was “recovering moderately” as people spent on eating at restaurants and travelling as well as purchasing autos, according to the report.

The government’s campaign to subsidise domestic travel and the easing of border control steps boosted tourism, the report said.

The Cabinet Office described exports as “weakening recently”, unchanged from the January report. Japan’s shipments to Asia weakened due to impacts from China’s coronavirus wave and softer demand for the semiconductor market. These also impacted manufacturers’ production activities. The Cabinet Office said recovery in Japan’s factory output was “stalling” in the latest report.

Uninspiring data highlights the delicate task at hand for academic Kazuo Ueda, the government’s nominee to become the next central bank governor, as he plots a path to normalising the bank’s ultra-easy policy without derailing a fragile economic recovery.

(Reporting by Kaori Kaneko; Editing by Christina Fincher)