Japan will pay close attention to China’s COVID-19 situation, as well as risks stemming from the global economic slowdown, rising prices and supply constraints, according to its monthly report in December.
The Cabinet Office’s economic report comes as Japan, the world’s third-largest economy, struggles with sluggish global growth and high import costs that have weighed on its exports and manufacturing.
The government cut its forecast for factory output for the first time in six months as global demand for semiconductors slowed, but kept its assessment of the broader economy unchanged, saying it was “improving moderately.”
“If the infection situation in China affects supply chains or trade, it could also affect the Japanese economy, as we have already seen this year,” a Cabinet Office official said.
Meanwhile, Tokyo upgraded its outlook on business confidence for the first time in a year to say it was showing signs of recovery. Earlier, the government had claimed that the recovery of business confidence was on hold.
Companies posted positive gains, with manufacturers particularly helped by the yen’s weakness. Government support for a national travel discount program and reopening to foreign tourists helped the entrepreneurial mood of non-manufacturing companies.
In other key economic areas, the Cabinet Office kept its outlook on private consumption unchanged, saying it was picking up moderately.
He also claimed that capital spending was recovering.
The report reiterated that the government expects the Bank of Japan to reach its target of a 2% price increase on a stable basis, based on the economy, prices and financial situation.
On Tuesday, the central bank surprised markets with a modification of its bond yield control that allows long-term interest rates to rise further, a move aimed at easing some of the costs of prolonged monetary stimulus.
