Japan cuts view on exports as Asia slows, yen rises

By Kaori Kaneko

TOKYO, Dec 22 (Reuters) - Japan's government cut its view on exports and business sentiment on Wednesday due to a slowdown in Asia's economic recovery and a persistently strong yen.

But the government kept its overall view of the economy unchanged in its economic report for December, saying the economy is at a standstill and in a difficult situation with a high jobless rate.

In its monthly report for October, the government lowered its overall economic assessment for the first time since February 2009.

Many economists are forecasting that Japan's economy will contract in the fourth quarter of this year as the expiry of government stimulus measures hits factory output. The economy is likely to resume expansion next year as exports and domestic demand slowly recover, economists say.

"Exports are decreasing moderately," the government said in its monthly economic report, downgrading its view on exports for the first time in two months due to slowing shipments of electronic parts to Asia.

In the previous monthly report, the government said exports had been weakening.

Data showed Japan's export growth picked up in November for the first time in nine months due partly to the yen's pullback from 15-year highs, but analysts said signs of softening demand overseas clouded the outlook.

DRAFT BUDGET

The government is set to present a draft budget on Friday for the next fiscal year starting in April, the first budget compiled from scratch by the Democratic Party-led government since it ousted the long-ruling Liberal Democrats in August 2009 and a test of the government's ability to maintain fiscal discipline.

Should the overall economy deteriorate more than the government is expecting, policymakers may have little leeway for pump-priming given a large fiscal debt burden.

In its report for December, the government also downgraded its view on business sentiment for the first time since April 2009, saying it was showing "signs of caution".

Previously, it said firms' judgment on business conditions was improving but cautious views were spreading.

The government left unchanged its views that industrial production has been decreasing recently and that private consumption is picking up but showing some weakness.

"Some weakness is seen in factory output and private consumption due to a slowdown in Asian demand and the end of the government subsidies for purchases of fuel-efficient cars," said Fumihira Nishizaki, director for macroeconomic analysis at the Cabinet Office.

"On the other hand, income is solid and overseas economies as a whole are in a moderate recovery. Once a hit to consumption runs its course and if overseas economies continues their recovery, Japan's production is expected to recover."

In the monthly report, the government said the economy was expected to pick up on the back of improvement in overseas economies and the effects of various policy measures, although some weakness was expected for a while.

The government also retained its caution about spillover from a possible slowdown in overseas economies and fluctuations in the currency and stock markets.

The government also repeated that it would work with the Bank of Japan to beat deflation as a top priority.

Source: www.reuters.com