TOKYO (Reuters) – The Japanese government stuck to its assessment that the economy is recovering moderately, although it reiterated the need to pay close attention to potential global economic risks and financial market volatility.
“The economy is expected to continue recovering at a moderate pace with the improving employment and income situation,” the Cabinet Office said in its monthly report for October, keeping the assessment unchanged for a third straight month.
The report was released after Sunday’s general election in which Japan’s ruling bloc led by the Liberal Democratic Party lost its majority, complicating the outlook for interest rates and fiscal policy.
The monthly report identified higher interest rates in the U.S. and Europe, and stagnation in Chinese real estate market as downside risks for the Japanese economy. The fallout from conflicts in the Middle East and Japan’s inflation should also be watched, it said.
The government largely kept its view on other sub-sectors of the economy unchanged, except for industrial production, which it downgraded to describe as “flat recently” from “shows movements of picking up.”
It was the first downward revision in industrial production in eight months, and the report said the sector was expected to recover even though the impact from the risks of an economic downturn overseas needed to be monitored.
Private consumption, which accounts for more than half of economic output, continued to show signs of picking up, as demand for new vehicles and house appliances is improving, the government said. Business investment is also picking up, and firms’ assessment on the current business conditions is improving.
The report was presented on Tuesday at a meeting of relevant cabinet ministers and Bank of Japan (BOJ) Governor Kazuo Ueda.
The BOJ’s closely watched “tankan” survey showed earlier this month that Japanese business sentiment was steady in the three months to September, while companies remained cautious about the outlook with service-sector firms projecting business conditions to sour over the next three months.
The BOJ will hold a two-day policy-setting meeting this week, ending on Thursday. A slim majority of economists in a Reuters poll expect the central bank to stick to its current monetary policy and forgo raising interest rates again this year.
(Reporting by Satoshi Sugiyama; Editing by Neil Fullick)