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Sluggish consumption hurting Japanese economy, report says; BOJ cautious of rate hike

Sluggish consumption hurting Japanese economy, report says; BOJ cautious of rate hike

The Japanese government kept its assessment of the economy unchanged on Monday, saying sluggish consumption was hurting the country's economic recovery, as the central bank's governor remained cautious of an early interest rate hike.
Rising production and capital investment propelled the world's second-largest economy to a record 59th consecutive month of recovery _ nearly five years _ since January 2002, according to a Cabinet Office report released Monday.
But the report, which looks at a variety of economic factors besides gross domestic product, warned of weakness in consumer spending, saying sluggish growth in wages was keeping spending flat.
Domestic demand, which accounts for more than half of the economy, undercut growth in the July-September quarter, forcing the government to downgrade its economic outlook earlier this month.
The Cabinet Office left its overall assessment of the economy unchanged from the previous month after downgrading it last month for the first time in almost two years.
Corporate profit and investment are on the rise, while industrial production is increasing moderately and exports remain flat, it noted.
The latest report echoes concerns that although Japan has emerged from a decade-long economic stagnation _ with robust exports contributing to record profits at Japanese companies _ those profits have not driven up wages and spending.
The Japanese economy's recent growth is also less stellar than the double-digit growth it experienced from the late 1960s. The economy grew at an annualized pace of 0.8 percent in the third quarter.
Prime Minister Shinzo Abe later told reporters that he would work to realize economic growth that "can be felt by the general public."
Economy minister Hiroko Ota tried to downplay the report's concerns.
"The basis for the recovery is solid," she said at a separate news conference, adding that a trickle-down of corporate profits to the household sector would occur, albeit slowly.
In the report, the government also appeared to urge the Bank of Japan to hold off on an early interest rate hike, which officials worry could choke off the country's economic recovery. The bank raised its benchmark lending rate to 0.25 percent in July, after keeping rates at virtually zero for six years to encourage borrowing.
"The government and the Bank of Japan will make joint efforts ... to realize sustainable growth based on shared macroeconomic management perspectives," the report said.
Abe's government has repeatedly said the country must first beat deflation _ the spiraling price declines that have long undermined corporate earnings and wages _ before any rate hike. But prices have been slow to recover, with a key price index rising just 0.1 percent in October from a year earlier.
Bank of Japan governor Toshihiko Fukui said Monday the bank was prepared to help underpin the economic expansion.
"We can keep an accommodative monetary environment led by very low interest rates for some time," Fukui told business leaders at a year-end meeting of the Japan Business Federation, also known as the Nippon Keidanren.
"We will tighten monetary policy if economic activity and prices develop in line with our projections," he said.
The chairman of the federation, Fujio Mitarai, said he expected strength in the corporate sector to be soon passed on to wages.
"As the economy becomes more robust and corporate performances improve, those effects should cross over to the household sector," Mitarai, who is also chairman of Canon Inc., told reporters.


Updated : 2021-05-06 16:10 GMT+08:00