Japan’s government downgraded its assessment of the world’s third-biggest economy for the first time in 10 months as some analysts forecast that GDP will shrink this quarter.
Risks include a “further slowing down of overseas economies and sharp fluctuations in the financial and capital markets,” the Japanese Cabinet Office said in a monthly report released in Tokyo yesterday.
It cut an evaluation of the global economy.
The government cut its view on personal consumption, home-building, exports, imports and industrial production, while raising its assessment of the labor market.
The Bank of Japan (BOJ) next meets on Sept. 18 and 19 to review monetary policy, while global investors are awaiting a speech on Friday by US Federal Reserve Chairman Ben Bernanke to gauge the outlook for stimulus in the world’s biggest economy.
“Europe’s debt crisis is having the effect of a body blow to Japan’s economy,” said Yoshimasa Maruyama, chief economist at Itochu Corp in Tokyo.
“Concerns over Japan’s economic outlook will probably build pressure on the BOJ to apply more monetary stimulus,” said Maruyama, who added that the central bank could move in October.
JPMorgan Securities Japan Co forecasts a 0.3 percent annualized decline in GDP in the three months through next month, while BNP Paribas SA estimates a 0.9 percent fall. The median estimate in a Bloomberg News survey compiled this month was for 1 percent growth, partly supported by earthquake reconstruction work.
Japan stocks slid after the government downgraded its assessment of the economy.
The TOPIX lost 1.2 percent to 746.30 at the 3pm close in Tokyo, the biggest drop since Aug. 3, with more than five shares falling for each that rose.
The Nikkei 225 Stock Average slid 0.6 percent to 9,033.29 after rising as much as 0.6 percent earlier.
Grappling with the world’s biggest public debt burden, Japan’s government is also at risk of a financing crunch.
Japanese Finance Minister Jun Azumi said yesterday that government funds may “dry up” up if a financing bill fails to pass in the upper house of parliament.
“We’d have to consider how to save money while trying to avoid affecting people’s lives as much as possible,” he said.
“The Japanese economy is on the way to recovery at a moderate pace, partly due to reconstruction demand, while some weak movements are seen recently,” the Japanese Cabinet Office said.
The government lowered its economic evaluation of the US, Europe, China, the rest of Asia except India, and said Japan’s overseas shipments are “growing weaker.”
In the labor market, there are “signs of improvement, although some severe aspects still remain,” the Japanese government said.