Ruling LDP Government Revises Economic Outlook

The Abe administration Thursday slightly cut its overall view on the economy, its first downgrade in a year and a half, but officials shrugged off the need for more stimulus to support the economy.

The government said the economy was on track for a moderate recovery, in keeping with its main overview at its March assessment, but noted there was some weakness in demand after a sales tax increase went into effect on April 1.

The government’s first downgrade since November 2012 comes a week after the Bank of Japan kept its rosy view that the economy was recovering moderately. But government officials see no gap in the economic view of the government and the central bank.

“The pullback from the last-minute demand has been within expectation and we consider it as temporary,” said a senior Cabinet Office official in charge of compiling the monthly report for April, which was issued on Thursday.

“We have already compiled an economic package to deal with it and we don’t think additional measures will be needed,” he said, referring to steps including stimulus spending worth 5.5 trillion yen ($53.78 billion), which was rolled out in the previous fiscal year that ended in March.

Policymakers and private-sector analysts expect a temporary dip in economic activity in the current quarter due to the sales tax rise to 8% from 5% on April 1, before returning to moderate growth in the following quarters.

Sales of cars and household appliances have dropped about 20 percent in the first two weeks this month compared with the same period a year ago, and those for daily necessities have fallen, the Cabinet Office official said. The drops in sales were within expectations and they don’t seem to keep falling, he added.

The government cut its view on private consumption, imports, factory production and housing investment, all of which have taken a hit from a pullback in demand after the sales tax hike.

Private consumption, which accounts for about 60% of the economy, is weakening, and industrial output, a leading indicator of the economic cycle, is almost flat, it said.

On prices, the government said consumer prices were rising moderately but wholesale prices have turned flat as a pause in the yen’s weakening trend eases upward pressure on import costs.

BOJ Governor Haruhiko Kuroda maintained this week that the economy would resume growth above its potential after weakening in the April-June quarter, and it was on track to meet its 2% inflation target which investors say is hard to achieve.

($1 = 102.2750 Japanese Yen)

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