The Japanese government has upgraded its economic assessment for the first time in over a year, signalling signs of improved consumption and fostering optimism for a broader recovery. This positive shift in outlook was highlighted in the Cabinet Office's monthly economic report for August, marking the first upgrade since May 2023.

The report notes that while the Japanese economy is recovering at a moderate pace, some areas still appear to be stagnant. Consumption has seen an uptick as the effects of shipping stoppages at certain automakers diminish. Additionally, an increase in household disposable income, along with temporary cuts in income and resident taxes, has contributed to this boost in consumption.

Despite this, the extreme summer heat has led to mixed results in consumption patterns. While there has been a rise in demand for air-conditioning, parasols, and ice cream, foot traffic at theme parks and restaurants has decreased.

The report also forecasts a decline in import prices, primarily due to a recent correction in the yen's weak trend. Furthermore, for the first time in more than two years, the assessment for housing construction has been upgraded to "almost flat" from the previous "in a weak tone," reflecting a halt in the decline of owner-occupied house construction.

Assessments for other sub-sectors, including exports, remain unchanged. The updated report was presented at a meeting attended by relevant cabinet ministers and Bank of Japan (BOJ) Governor Kazuo Ueda.

Earlier in the month, government data revealed that Japan's economy had expanded at a much faster-than-expected annualised rate of 3.1 per cent in the second quarter. This rebound, following a slump at the beginning of the year, was largely attributed to a robust increase in consumption.

Source: Reuters