Japan gov't maintains economic view as domestic demand-led recovery faces headwinds

Source: Xinhua| 2017-08-28 17:59:20|Editor: Song Lifang
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TOKYO, Aug. 28 (Xinhua) -- The Japanese government maintained its view for the third straight month in August that the economy is recovering moderately, according to a report released on Monday.

In spite of the upbeat report, some economists remain skeptical of a domestic demand-led recovery amid weaknesses in major economic components such as wages, the yen's strength and continued deflationary pressure.

In its monthly report for August, the Cabinet Office here maintained its view that the economy "continues to recover moderately as a trend," owing to increases in private consumption and capital expenditure.

Private consumption, which accounts for almost 60 percent of Japan's gross domestic product, is "picking up moderately," the Cabinet Office said, adding that business investment and exports are "picking up."

The government also said that public investment had improved in the recording period as evidenced by an increase in public works projects that have been financed by the government's extra budget last year.

"Public investment is moving on a firm note," the Cabinet Office said. This compares with its previous assessment in July which stated that public investment was "increasing resilience."

But some economists have noted that the world's third-largest economy is still facing headwinds as consumption and wage increases are still not on a solid footing, to the point that the growth rate in the previous quarter may be unsustainable.

Japan's financial and stock markets have also been volatile of late with geopolitical tensions in the region pushing up the value of the yen against a basket of other currencies as investors switch out of riskier assets like stocks and pile into the yen as a safe haven.

A strong yen versus its counterparts is detrimental to Japan's export-led economy as companies with a wide exposure to overseas markets rely on a weaker yen to boost their competitiveness abroad and widen their profit margins when yields are repatriated on favorable exchange rates.

While Economy Minister Toshimitsu Motegi told a press briefing Monday that "The economy is enjoying a domestic demand-driven recovery."

"Under current economic circumstances, I don't expect the government to submit a supplementary budget at this autumn's extraordinary parliament session."

Motegi's remarks are somewhat incongruous with the current situation of the domestic economy, particularly in terms of consumption, wages and business spending, noted a market analyst, highlighting the fact that deflationary pressure is still hitting homes and businesses in Japan and that this is inhibiting spending.

The Bank of Japan (BOJ) has on numerous occasions delayed its target date of achieving a 2-percent inflation rate, despite its hefty stimulus programs and ultra-loose monetary policy.

Other analysts, meanwhile, pointed to turbulence in overseas economies as potentially having an adverse effect on Japan's economy, as did the government's own assessment on Monday.

"Attention should be given to uncertainty in overseas economies and the effects of fluctuations in financial and capital markets," the Cabinet Office's report said, adding that the global economy has only been "moderately recovering."