The government on Thursday maintained its view that the Japanese economy continues to recover moderately but warned downside risks from elevated overseas interest rates may weigh on global growth.
In its monthly economic report for June, the Cabinet Office did not change its assessments of almost all key components. It noted that industrial production showed signs of picking up "recently," signaling that the negative impact of a data-rigging scandal in the auto sector is waning.
Japan's economy appears to be on shaky ground after its first contraction in two quarters in the January-March period. Economists expect a rebound in the current quarter to June, though rising prices of everyday goods weigh on consumption.
A pickup in private consumption and exports "appears to be pausing," while business investment, another key component of domestic demand, shows signs of picking up, the report said.
The government's view on public investment was downgraded for the first time in eight months, though it was still judged to be firm.
"The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing," the report said, using the same expression for the fifth straight month.
It added that full attention should be given to inflation, the situation in the Middle East and fluctuations in financial markets.
The yen's persistent weakness, especially relative to the U.S. dollar, is raising concerns that it will boost import costs of energy and raw materials, keeping the inflationary trend intact.
Despite its warning about a potential blow to the Japanese economy from "continued high interest rate levels in the United States and Europe," the government lifted its view on the global economy for the first time since May 2023, saying overseas economies are "picking up."
