Japan Downgrades Its View of the Economy for First Time Since 2016

(Bloomberg) -- The Japanese government has downgraded its assessment of the economy for the first time in three years, underscoring rising concerns ahead of a sales-tax hike slated for October.

The Cabinet Office cited recent weakness in exports and industrial production in its monthly report released Wednesday, although it said the economy continued to recover at a moderate pace.

Japan’s economy is sputtering as global growth slows. The flagging recovery puts Prime Minister Shinzo Abe in a tough position. Previous increases in the sales tax have hit consumers hard. In 2014, Japan’s economy contracted sharply after the tax was raised.

The Bank of Japan has also taken a dimmer view of the economy, cutting its assessment of exports and production in its latest monetary policy meeting last week. Some officials believe it will be hard to reach the BOJ’s 2 percent inflation target even in 2021, according to people familiar with the matter.

The Cabinet Office downgraded its assessment of factory production for a second straight month, saying it has become “almost flat.” Exports are “in a weak tone,” it said, after data Monday showed that shipments fell for a third straight month in February.

Bloomberg Economics’ Yuki Masujima expects gross domestic product to take a hit in the first quarter, with the GDP tracker pointing to a 2.5 percent annualized contraction from the previous quarter.

©2019 Bloomberg L.P.