The fragility of the Japanese economy was yet again brought into the stark light of day as the government dropped its rating for capital expenditure for the first time in 11 months, while at the same time giving a rosier outlook on private consumption.
The Shinzo Abe administration held firm to its broad assessment of the world’s third largest economy in its September report, describing it as being in “a slow recovery with underlying issues”.
The Cabinet Office released the report to the public on Tuesday and the results are being scrutinized by the country’s media who are starting to turn on the current PM who’s “Abenomics” are failing to deliver the promised results.
Household spending, factory production and, most importantly, exports are all on a downslide according to a slew of economic reports recently, and the country’s central bank will hold a policy meeting at the end of next week to decide on the next course of action. The only bright spot was an increase in core machinery output.
Many observers are expecting the Bank of Japan (BOJ) to continue with its easing strategy as inflation slips beneath their 2 percent target and economic growth remains weak at best.
“We’ll see a full report of how the stimulus is affecting the economy near the end of this month,” said Anthony Russell, Senior Vice President at Monex BMO Securities in an email to clients. “The decrease in capex [capital expenditure] is not encouraging but it’s unclear how long that will go on for. If corporate profits can stay strong then the government can change their assessment moving into October.”
Last month capital expenditure was rated as showing “a pickup”, so September’s early data is a downgrade.
Meanwhile, private consumption was “very solid in general”, excellent news as it constitutes about 70 percent of the nation’s economy. It’s the first time the benchmark factor has been upgraded for over a year, as buyer sentiment has been stagnant.
Business sentiment and housing construction also merited a small upward revision in the government report.
