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Japan Downgrades Economic View For Fourth Straight Month

Japan Downgrades Economic View For Fourth Straight Month
11/16/2012 12:47 AM ET

The Japanese government on Friday cut its assessment of the economy for a fourth month in a row, in the longest bout of downgrades since the global financial crisis after official data showed the gross domestic product contracted in the third quarter.

"The Japanese economy shows weakness recently due to deceleration of the world economy," the Cabinet Office said in its monthly report for November. This is a more downbeat assessment than in October when the government said "the economic recovery is in a weak tone" and "some components still show steady movements."

According to the latest official data, the economy contracted at an annualized 3.5 percent year-on-year in the third quarter, the sharpest pace since the 2011 earthquake.

The government also cut its view on corporate profits as well as business investment. "Corporate profits are flattening further, mainly among manufacturers. Business investment is in a weak tone," it said.

Additionally, the report reiterated that exports are in a weak tone and industrial production is decreasing. Private consumption is showing weakness and the improvement in the employment situation appears to be pausing, it added.

The report also noted that uncertainty surrounding the economic prospects of the Eurozone and Asia, notably China, remained high. Attention should be paid to the employment and income situations going forward as well as the adverse effects of deflation on the economy, it noted.

Japan's recovery is expected to resume with the improvement of the overseas economies and persistent reconstruction demand. At the same time, the possibility of further slowing down of overseas economies and sharp fluctuations in the financial and capital markets posed downside risks to the economy.

The government said it will make "maximum effort" to prevent the economy from falling into vicious cycle of yen appreciation and deflation, and will implement "seamless policy measures." The report also said the government "strongly expects" the Bank of Japan to continue "powerful monetary easing."

Prime Minister Yoshihiko Noda is set to dissolve Parliament on Friday, paving way for general election on December 16. An official announcement will be made at a press conference in the afternoon.

The Bank of Japan is widely expected to leave monetary policy unchanged when its Policy Board meets next week. The central bank lifted the size of its asset purchase program to about JPY 91 trillion from JPY 80 trillion in October.

by RTT Staff Writer

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