Japan govt warns of coronavirus fallout; economic view unchanged

February 21, 2020

Tokyo--The Japanese government in a monthly economic report released Thursday called for caution against adverse impacts of the outbreak of the new coronavirus originating in China while keeping its basic economic assessment unchanged.

"Full attention should be given to effects of the novel coronavirus on the Japanese and overseas economies," said the February report, compiled by the Cabinet Office and submitted to the day's meeting of economic ministers.

The report said, "the Japanese economy is recovering at a moderate pace, while increased weakness mainly among manufacturers is continuing, as exports remain on a weak tone."

The overview was basically unchanged compared with the basic assessment in the previous January report that the economy "is recovering at a moderate pace, while weakness mainly among manufacturers is increasing further, as exports are continuing in a weak tone."

The course for the Japanese economy, however, remains uncertain, with the country's seasonally adjusted gross domestic product falling a real 6.3 pct quarter on quarter at an annual rate in October-December 2019, down for the first time in five quarters.

While adding the clause showing its concern over the coronavirus fallout, the Cabinet Office deleted from the February report the wording included in the January report that attention should be paid to "the situations of the consumer sentiment after the consumption tax increase" to 10 pct from 8 pct conducted by the Japanese government last October.

The effects of the tax hike are waning, Economic and Fiscal Policy Minister Yasutoshi Nishimura said at a press conference, citing a reason for keeping the basic economic assessment unchanged.

According to the GDP data, released by the Cabinet Office earlier this month, private spending, which accounts for about 60 pct of the country's GDP, tumbled a real 2.9 pct quarter on quarter in the final quarter of 2019.

Nishimura said that the large decrease reflected effects of a powerful typhoon, warmer winter weather and fewer holidays, as well as a pullback in demand after the consumption tax increase.

Noting that the coronavirus outbreak is the "biggest concern" for the Japanese economy at present, Nishimura stressed that preventing the outbreak from expanding is the "most effective measure" to shore up the economy.

An official of the Cabinet Office said, "The effects of the consumption tax hike have started to wear off, and we now face a situation in which we should be most cautious about" the impacts of the outbreak of the new coronavirus.

The government changed its view on imports for the first time in 13 months, with the February report saying that they are in a weak tone recently, compared with the January assessment that imports are almost flat. The change reflected stagnant production and investments.

The government lowered its assessment on corporate bankruptcies for the first time in 55 months, saying that the number of business failures is on the rise. In January, the government said bankruptcies are largely leveling off.

The government left its assessments on exports and private consumption unchanged, citing a weak tone for the former and a pickup for the latter.

On short-term prospects, the government said that the economy "is expected to continue recovering" on the back of the effects of policy measures and improvements in the employment and income situations.

On overseas economies, the government said that growth in China continues to slow, with the viral outbreak starting to take a toll on economic activities in the country. The epidemic may put downward pressure on the Chinese economy for a while, the report said.

The impacts of measures taken by the Chinese government to contain the viral crisis, such as restricting people's movement and suspending corporate activities, "are expected to start appearing in coming economic indicators," the official warned. Jiji Press