Japan retains cautious economic view, flags risks from US trade policies  

[TOKYO] The Japanese government largely retained its cautiously optimistic view of the economy in its economic report published on Thursday (Jan 22), while warning of downside risks from US trade policies.

In its monthly economic assessment for January, the Cabinet Office reiterated that the world’s fourth-largest economy was recovering moderately – but highlighted the possible impact of US policies, especially those on its auto industry.

It also underlined the need to remain vigilant over market movements.

The government’s outlook on private consumption, which accounts for more than half of the economy, was maintained and described as “picking up” for a fifth consecutive month.

The only major change in the economic assessment was in the trade and services balance, revised to “roughly balanced” from “in deficit”.

On prices, it said the rise in food costs – the main driver of inflation – slowed, and the government will watch closely to see whether signs of a slowdown in price increases take hold.

The yen’s sharp declines since October, however, have heightened uncertainty on whether cost-push price pressures will moderate as smoothly as the Bank of Japan (BOJ) projects.

Japan’s economy contracted an annualised 2.3 per cent in the third quarter, as a drop in exports from the impact of higher tariffs resulted in the first contraction in six quarters.

Meanwhile, the BOJ is expected to keep its interest rates steady at its two-day policy meeting ending on Friday, after raising its benchmark rate to a 30-year high of 0.75 per cent in December.

SEE ALSO

Japanese bonds may rebound after Katayama calls for market calm

BOJ to signal more rate hikes as yen, politics fuel inflation risks

Japan’s exports rise for fourth straight month, partly boosted by weaker yen

Political developments have also added to economic uncertainty.

On Monday, Prime Minister Sanae Takaichi called a snap parliamentary election on Feb 8 to seek voters’ backing for policies such as increased government spending and a two-year suspension of a consumption tax on food.

Her proposals sparked a broad sell-off in bonds, currencies and stocks on concerns that Japan’s already-strained public finances could worsen. REUTERS