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Japan sees economy picking up modestly, flags looming risks

TOKYO (REUTERS) – Japan’s government described its economy as “moderately picking up” in its monthly economic report, keeping the overall assessment unchanged from the previous month, while noting an upward revision to factory output.

While sounding cautiously optimistic on the world’s No. 3 economy, the government flagged risks of a global downturn amid an overseas trend of monetary tightening and rising inflation while households face slower wage growth.

“The economy is picking up moderately,” the Cabinet Office, which compiled the report, said. “It is expected to pick up ahead as we stand ready to take all possible steps to prevent infections as socioeconomic activity normalises,” it added, referring to coronavirus cases.

The report was approved by Prime Minister Fumio Kishida’s cabinet ministers on Thursday (Aug 25).

The government upgraded its view on factory output for August as production bounced back from declines seen in April and May as China’s anti-coronavirus lockdowns eased.

Factory output showed signs of picking up, the report said, compared with July when production appeared to be stalling. It marked the first upgrade in seven months.

The assessments of other major components of the economy saw no change from the previous month.

Private consumption, which accounts for more than half of Japan’s economy, was picking up moderately, the report said, noting the resumption of activity among consumers who are “living with coronavirus” after the lifting of Covid-19 curbs.

“Downward deviation in world economy stemming from global monetary tightening is emerging as risks that weigh on Japan’s economy,” the report said.

“Attention needs to be fully paid to supply constraints and a price-hike impact on households and corporations.”

Japan’s economy rebounded at an annualised 2.2 per cent in April-June from Covid-induced doldrums.

Still, the pace of growth undershot economists’ median estimates, raising doubts about the strength of private consumption and expectations for pent-up demand known as revenge spending.