Japan Lowers Capex Forecast as Economy Remains Sluggish

The Japanese government released its monthly economic report card on Tuesday. The assessment of the health of the economy could be summed up as a passing grade, but not much more. The economic report noted that the “economy is recovering at a moderate pace, while it is showing weakness centered on manufacturers … amid continued softness in exports”. The report added that capital spending was “on the trend of moderate increase but it showed some weakness”. This assessment was slightly softer than that in the December report, which said that capital spending was increasing at a moderate rate.

The report acknowledged that the manufacturing sector remained weak and that exports had fallen off. As for external risks, the report said that the government would closely monitor economic conditions in China, as well as Brexit and the situation in the Middle East.

The government economic report comes on the heels of the Bank of Japan’s monetary policy meeting. As expected, the BoJ did not make any changes to monetary policy. BoJ Governor Kuroda said that low inflation levels required the bank to maintain current stimulus policies. There was some positive news as well from the BoJ, which slightly raised its growth forecast for the fiscal year beginning in April 2020, to 0.9% from 0.7%. This upward revision was a result of Prime Minister Abe’s US$120 billion economic package which was announced in December.

Analysts noted that the BoJ growth forecast for 2020 lies in between the views of private economists and the government. Economists have projected a negligible growth of 0.6% for fiscal 2020, while the Japanese government has predicted a gain of 1.4 percent. Given that the fact that Japan’s export-reliant economy has been hit hard by a weak global economy, policymakers will have to find ways to increase domestic demand and consumption.

As for the Japanese yen, the currency remains under pressure. USD/JPY pushed across the key 110 level on Tuesday, for the first time since May. Given the lukewarm assessments for the economy from the government and the BoJ, the yen will likely have a tough time holding its own against the U.S. dollar.