TOKYO (Reuters) -Japan’s government saw that the economy in October was recovering moderately because of solid capital expenditures in a monthly report issued on Wednesday.
The government report also reiterated its cautiously optimistic outlook that the economy, the world’s fourth-largest, is expected to recover gradually led by improving employment conditions but warned of downside risks from U.S. trade policies.
“Although the impact of the U.S. trade policies is primarily affecting the automotive industry, the economy is recovering moderately,” the Cabinet Office said in the report.
Japan’s capital spending was “picking up moderately”, thanks to solid investment in software and digitalization, according to the report.
The government kept its view on private consumption, which accounts for more than half of the economy, saying it showed signs of “picking up”, according to the report.
But the pace of recovery in private consumption lags behind capital investment and exports amid persistent inflation, it said.
Exports were “almost flat”, with steady shipments to Asia, while exports to the United States have weakened since July amid tariff increases.
The report did note an increase in the number of bankruptcies in September because of labour shortages though it remains to be seen if that trend will continue.
The report follows the installation of a new government under Prime Minister Sanae Takaichi, who has pledged to pursue proactive fiscal expansion to stimulate economic growth.
To help ease the burden from inflation on households, the premier is preparing an economic stimulus package that is likely to exceed last year’s $92 billion, government sources said last week.
The report also comes before the Bank of Japan’s policy meeting on October 29-30 when the central bank is likely to debate the best timing for the next round of interest rate hikes as worries about a tariff-induced recession ease, though political complications may keep it on hold for now.
(Reporting by Kaori Kaneko; Editing by Christian Schmollinger)
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