People are reflected in the windows of a department store in a shopping district in Tokyo, Japan June 29, 2016. REUTERS/Toru Hanai
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TOKYO, March 25 (Reuters) – Japan must closely monitor downside economic risks from rapid commodity inflation caused by war in Ukraine and disruption to global energy supplies, the government said in a monthly bulletin on Friday.
The world’s third-largest economy is yet to return to pre-pandemic levels before the latest price surge as COVID-19 outbreaks and containments prevent a consumption-led recovery.
“As uncertainties loom over the situation in Ukraine, downside risks such as rising commodity prices, volatility in financial markets and supply shortages warrant full attention,” the government said in its monthly bulletin.
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The report left its main assessment of the economy unchanged from last month and said the recovery was underway, although some weaknesses remained.
One of those weaknesses was the household sector, with the report repeating last month’s assessment that continued COVID-19 restrictions on personal services saw private consumption falter. Continue reading
Authorities also said consumer prices in Japan have “risen moderately” after describing them as “steady” in reports over the past seven months.
“We have changed the description to one that simply acknowledges recent price increases, particularly for food,” a government official said at a news conference before Prime Minister Fumio Kishida’s cabinet approved the report.
Japan’s core inflation hit a two-year high of 0.6% in February as more companies started passing costs on to households.
Analysts and policymakers expect core inflation to approach 2% in April, on the back of rising energy costs and the fading impact of earlier cell phone tariff cuts. Continue reading
In the context of the latest spring wage negotiations and private sector price forecasts, the report warned of the potential damage inflation could do to consumers by depressing real incomes. Continue reading
“There are fears that price increases will outpace wage growth and we need to carefully monitor its impact on consumption,” the official said.
Kishida, who has pledged to protect the Japanese economy from rising costs through higher wages, is expected to direct the cabinet next week to draft new economic relief measures.
In the March report, the authorities upgraded their outlook on corporate earnings on the back of robust fourth-quarter earnings data, but downgraded their outlook on business conditions amid a somber business survey result from late February. Continue reading
The government made the first upgrade in its import rating in 13 months to watch an improvement in electronics shipments from Asian countries, led by China, where production recently rebounded, the report showed.
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Reporting by Kantaro Komiya; Editing by Sam Holmes
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