Japan's monthly economic assessment unchanged, but business sentiment worsens

[TOKYO] Japan's government kept its assessment of the economy unchanged in July but said business sentiment has worsened after the Bank of Japan's tankan survey showed the corporate mood stagnated in April-June due to a strengthening yen.

The government left unchanged its assessment of exports and industrial production, but there are signs that corporate activity is losing momentum as exports decline.

Overall, the report is unlikely to reduce uncertainty about the economy as the government drafts fiscal stimulus spending to boost growth and as expectations mount for more monetary easing to get the inflation rate up. "The economy remains in moderate recovery, but weakness in some areas can be seen," the Cabinet Office said on Monday in its monthly economic assessment, which was unchanged from last month.

Japanese companies are becoming more cautious about the outlook, the Cabinet Office said, which marked a downgrade from last month's assessment that there were some signs of caution.

Confidence at big Japanese manufacturers was unchanged in June from three months earlier, the BOJ's tankan survey showed earlier this month, but confidence at large automakers slipped in a warning that overseas demand could be weak.

The vast majority of the companies the BOJ surveyed replied before Britain's shock vote to leave the European Union. Some economists worry that when Brexit is fully factored in, sentiment in Japan could weaken further.

The yen has risen around 13 per cent versus the dollar so far this year, and some Japanese policymakers are worried that further gains will erode exporters' earnings and increase deflationary pressure by lowering import prices.

The BOJ is expected to ease monetary policy at a meeting ending on July 29, according to a majority of economists polled by Reuters, to boost anaemic inflation.

The government is also crafting a massive spending package worth about 20 trillion yen ($256.6 billion), three government sources told Reuters last week.

However, economists worry that the benefits could be muted as spending will be spread over several years. Some economists also warn that focusing on stimulus spending will distract authorities from structural reforms.

REUTERS