Japan’s Monthly Economic Assessment Remains Unchanged, but Business Sentiment Declines – Reuters

TOKYO (Reuters) – Japan’s government maintained its economic assessment in July, noting a decline in business sentiment. This follows the Bank of Japan’s tankan survey, which indicated stagnation in corporate mood during the April to June period, largely due to the strengthening yen.

The government’s view on exports and industrial production remained the same, but there are indications that corporate activity is beginning to lose steam as export levels decrease.

This report is unlikely to diminish uncertainty regarding the economy, particularly as the government formulates fiscal stimulus measures aimed at boosting growth, while expectations for additional monetary easing grow in an effort to elevate inflation rates.

In its monthly economic review, which remained unaltered from the previous month, the Cabinet Office remarked, "The economy remains in moderate recovery, but weakness in some areas can be seen."

The Cabinet Office noted a shift towards increased caution among Japanese companies—a downgrade from the previous month’s report, which indicated only some signs of hesitance.

According to the BOJ’s tankan survey published earlier this month, confidence among large Japanese manufacturers was steady in June compared to three months earlier. However, large automakers showed a decline in confidence, signaling concerns about potential weakness in overseas demand.

Most companies surveyed by the Bank of Japan responded before the unexpected referendum in Britain regarding EU membership. Economists are concerned that once the implications of Brexit are fully absorbed, sentiment in Japan might deteriorate further.

The yen has appreciated by approximately 13 percent against the dollar this year. Some Japanese policymakers are apprehensive that any further increases could undermine exporter profits and heighten deflationary pressures by reducing import prices.

A majority of surveyed economists expect the Bank of Japan to implement additional monetary easing at its meeting concluding on July 29, in an effort to stimulate sluggish inflation.

Additionally, the government is reportedly developing an extensive spending package valued at about 20 trillion yen (around $188.5 billion), according to sources.

Nevertheless, economists express concerns that the potential positive impacts of this spending may be limited since it will be spread over several years. Some analysts also caution that an emphasis on stimulus measures could divert attention from necessary structural reforms.