TOKYO (Reuters) – Japan’s government cut its assessment of capital spending in January for the first time in eight months due to softer global demand but said its overall view of the economy was unchanged from December.
The government’s economic report came after the Bank of Japan nudged up its growth forecasts on Tuesday, although Governor Haruhiko Kuroda said low inflation meant the bank needed to keep its stimulus policies in place.
“The economy is recovering at a moderate pace, while it is showing weakness centered on manufacturers … amid continued softness in exports,” the Cabinet Office said in the report.
Among key economic elements, it said capital spending was “on the trend of moderate increase but it showed some weakness”.
Japan needs solid domestic demand such as capital spending to offset risks to its export-reliant economy from abroad.
January’s assessment was slightly softer than in December, when the Cabinet Office said capex was increasing moderately but with weakness seen in machinery investment.
“Weak external demand weighed on factory output, which prompted companies to rein in capital spending,” said a Cabinet Office official.
Corporations’ spending on research and development as well as software investment was on the rise, but manufacturers’ capex has become excessive compared to demand, he added.
In the January report, the government maintained its view on factory output, saying it was “weakening further”. It also said exports were weakening.
The report said the economy was expected to continue recovering moderately thanks to government stimulus measures, with the labor and wage environments improving, although weakness remains.
It added that the government will closely watch the prospects for China’s economy, Brexit and the situation in the Middle East, which could impact on financial markets, as well as the impact of Japan’s sales tax hike.
Last month, the government trimmed its overall view on the economy for the fourth time in 2019 after downgrading its assessment of manufacturing output.
It had earlier downgraded its overall assessment of the economy in October, May and March.
The world’s third-largest economy grew an annualized 1.8% in the July-September quarter thanks to resilient domestic demand and business spending.
Analysts expect the economy to have contracted in October-December due to the hit from October’s sales tax hike, and to rebound moderately in the current quarter.
(Reporting by Kaori Kaneko; Editing by Catherine Evans)