Japan will pay close attention to the COVID-19 situation in China, as well as risks from the global economic slowdown, rising prices and supply constraints, according to its December monthly report.
The Cabinet Office economic report comes as Japan, the world’s third-largest economy, struggles with slow global growth and high import costs that have weighed on its exports and manufacturing activity.
The government cut its forecast for factory output for the first time in six months amid lull in global semiconductor demand, but left its assessment of the broader economy unchanged, saying it was “moderately improving.”
“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 sentiment 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.
Businesses posted positive earnings, with those of manufacturers especially helped by the weak yen. Government support for a national travel discount program and reopening to foreign tourists helped boost entrepreneurial spirit among 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 stated that capital spending was picking up.
The report reiterated that the government expects the Bank of Japan to achieve its target of a 2% price increase on a stable basis, based on the economy, prices and financial conditions.
On Tuesday, the central bank surprised markets with a change to 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.