Japan maintains economic assessment, cuts view on business sentiment

The Japanese government maintains on Monday its monthly assessment that the domestic economy is recovering moderately but adopted a weaker view on corporate sentiment due to a firming yen and Britain's vote to leave the European Union.

According to the Cabinet Office's latest report, the economy is experiencing "a moderate recovery, while weakness can be seen recently." The employment situation has marked an uptick, the office said, although pointed out that consumer spending remained lackluster in the recording period.

The government, in its latest report, maintained its previous assessment of exports and industrial production, but the report noted there were indications that corporate investment and spending had been constrained owing to a slump in exports and, hence, declining orders and production, punctuated by the yen's strength.

"Firms' judgment on current business conditions shows cautiousness further," the government said, compared to its previous view in June which stated that business sentiment showed cautiousness.

The yen's strength, along with the "Brexit" vote in June, has added to uncertainty going ahead the latest report suggested, particularly in terms of long-term outlooks for companies with investments in Britain.

Sentiment in Japan could weaken further, analysts said Monday once the Brexit issue becomes fully factored in, and currency markets could remain volatile, as the yen has gained 13 percent versus the U.S. dollar this year, which is a headache for the nation's massive export sector, as the companies rely on a weak yen to boost their profits and competitiveness in overseas markets.

Exporters'profits are augmented overseas when the yen is weak and the yields are repatriated to Japan on favorable currency exchange rates. When the yen is strong, however, the opposite happens and exporters see their profits eroded.

Japan's central bank may further unroll new easing measures at the end of this month, according to the median view of leading economists polled on the matter, with the Bank of Japan's (BOJ's) measures thought to dovetail into efforts by the government to craft a new spending package to boost stimulus, possibly to the tune of 20 trillion yen (188.16 billion U.S. dollars), according to government sources with knowledge of the mater.

With the spending earmarked for the near future, some economists have voiced their concerns over the efficacy of the bank's and the government's efforts and, as has been the case in the past, urged more focus to be placed on mid-to-long-term issues centered around actualizing Prime Minister Shinzo Abe's as yet elusive structural reform rhetoric. Endit