Japan Lowers Economic Forecast

The slowdown in the U.S. economy has dented Japanese exports and consequently capped growth in industrial output.

TOKYO (Kyodo) — The government said Friday the Japanese economy has been expanding but its pace of growth is becoming slower on weak exports and production, downgrading its monthly economic assessment for the first time in 15 months.
Although maintaining that the world's second-biggest economy is still on an expansion cycle — for the 73rd month running — the slowdown in the U.S. economy has dented Japanese exports and consequently capped growth in Japan's industrial output, the Cabinet Office said in the February report.
The report said the Japanese economy ''is recovering at a moderate pace recently,'' compared with the wording used in January that the economy ''is recovering while some weaknesses are seen.''
The government said the change spells the first downward revision since November 2006.
''Downside risks are growing,'' said Fumihira Nishizaki, an analyst at the Cabinet Office. ''There is a strong possibility that it (the Japanese economy) will level off.''
The government cited the gloomier prospects for Japan's industrial output as a factor behind the downgrading.
In a recent survey by the Ministry of Economy, Trade and Industry, manufacturers forecasted industrial production would fall 0.4 percent in January from December and 2.2 percent in February from January.
The Cabinet Office downgraded its assessment of industrial output for the first time in eight months, saying that ''Industrial production is growing at a slower pace.''
Nishizaki said the government is especially worried by weakening domestic demand and exports.
It revised downward its assessment of exports for the first time in 17 months by citing slower exports to the United States and Europe.
On the U.S. economy, the government lowered its evaluation, saying the recovery in the world's largest economy is weakening while it faces ''further downside risks'' to its growth due to the fallout from the subprime mortgage crisis.
The report also said individual consumption in Japan is almost flat, consumer prices are rising, affected by higher oil and food prices, and that housing construction remains at a low level although showing signs of a pickup. The government kept its earlier assessments for all those categories unchanged.
But it reduced its assessment of employment for the first time in three months, saying an improvement in employment appears to be pausing.
On the brighter side, the government said that continuing robust corporate capital spending as a result of higher profits remains an ''engine of (Japan's economic) recovery.''
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