Japan’s government is seeing increased signs of a weakening global expansion that may weigh on an economy dependent on reconstruction demand from last year’s earthquake.
“The slowdown in the global economy is becoming more widespread,” the Cabinet Office said in a monthly report released in Tokyo today. The expansion in China is “slowing a bit,” it said, lowering its evaluation of Japan’s largest trading partner for a third month while leaving its assessment of its own economy unchanged from June.
Japan’s increased pessimism about global growth echoes that of the International Monetary Fund, which lowered its 2013 forecasts this month amid a prolonged sovereign debt crisis in Europe and slower expansions in emerging markets from China to India. “Sharp fluctuations” in financial markets stemming from global uncertainty could hurt Japan’s growth prospects, the government said.
Reconstruction demand from last year’s earthquake and gains in consumer spending helped to drive an annualised 4.7 percent expansion in the first quarter. The government reiterated that the economy is “on the way to recovery at a moderate pace” in part because of rebuilding projects.
Still, the economy is at risk as turmoil in Europe has boosted haven demand for the yen that could hurt exports, and China’s growth slowed last quarter.
The government said it expects the Bank of Japan (8301) to continue powerful monetary easing until the exit from deflation is ensured, today’s report showed. The government also said it will work together with the central bank to overcome deflation. BOJ Governor Masaaki Shirakawa met prime minister Yoshihiko Noda today. Shirakawa declined to say what the two discussed when asked by reporters in Tokyo.