Japan cuts economic assessment in Feb report as Omicron hits consumption

[TOKYO] Japan slashed on Thursday (Feb 17) its official view of the economy for the first time in 5 months after a recent outbreak of the Omicron variant of coronavirus forced reinstatement of Covid-19 curbs and disrupted a budding recovery of service consumption.

Private sector economists have trimmed Japan's current quarter growth forecast to near zero, if not contraction, following a solid annualised 5.4 per cent gain in the period from October to December.

"The economy continues to pick up, but some weaknesses are observed as severe conditions due to the coronavirus linger," the government said in the February economic report approved by Prime Minister Fumio Kishida's cabinet.

Among key economic elements, the government downgraded its evaluation of private consumption for the first time since September, saying the recovery appeared to be stalling lately.

"Restaurants, transport, hotels, travel - consumption in all of these services has been weak since late January," a government official told a media briefing ahead of the cabinet approval.

Japan's Covid-19 infections skyrocketed to record daily levels of 100,000 early this month. But infections have started to decrease in recent days, after curbs on restaurant timings and large events were reimposed and extended in most regions.

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Although authorities kept production assessment unchanged, Covid-19 outbreaks have also weighed on Japan Inc by disrupting labour and parts supply. This week's Reuters Tankan survey showed Japanese manufacturers' sentiment fell to a 11-month low.

The government made its first upgrade of capital expenditure assessment in 10 months, reflecting robust business spending figures in fourth-quarter gross domestic product data.

The government tweaked its view on wholesale inflation by adding a reference to its "gradual increase", following a month-on-month rise in corporate goods price data in January.

But consumer inflation has been steady, stripping out volatile prices of energy and fresh food, the government said in the report. Japan's core consumer prices rose 0.5 per cent in December from a year earlier.

Price trends "have yet to affect consumption significantly so far", the official said. "But it could bring some downward pressures by affecting (consumer) sentiment ... and it continues to require close attention looking ahead."

Elsewhere in the February report, the government downgraded its assessment on housing construction based on soft housing starts data. REUTERS