Japan Reports Modest Economic Recovery but Cautions on Global Slowdown

Despite a global economic downturn causing decreased exports and factory output, consumer spending in Japan continued to rise in February, leading to an unchanged economic outlook. However, the government expressed concern about the impact of global monetary tightening, supply constraints, and rising prices in its monthly report. The government will closely monitor financial market movements and the status of China's COVID-19 application.

Japan's economy avoided recession but recovered more slowly than expected in Q4 2020 due to a decline in firm investment. In its monthly economic assessment, the Cabinet Office stated that "the economy is gradually gaining, but some deterioration has been observed recently," despite the monthly evaluation remaining unchanged.

Consumer spending, which makes up more than half of Japan's GDP, was "recovering slowly" as people spent money on dining out, vacations, and buying cars. The government's initiatives to subsidize domestic travel and ease border check procedures boosted tourism.

The Cabinet Office's evaluation of the country's exports remained consistent with January's report, citing a "recent deterioration." Falling demand in the semiconductor industry, coupled with the impact of China's coronavirus epidemic, has contributed to a decrease in Japan's exports to Asian countries and impacted production processes. According to the Cabinet Office's latest data, Japan's industrial output's economic recovery has "stalled."

These less encouraging data highlights the challenging task that scholar Kazuo Ueda, nominated by the government to become the next governor of the central bank, will face as he attempts to normalize the bank's ultra-easy policies without compromising the fragile economic recovery. (Reporting by Kaori Kaneko; Editing by Christina Fincher.)