TOKYO (MNI) – The Japanese government on Monday revised down its
overall economic assessment for the first time in six months in its
monthly report for October, stating that the export-led recovery is
losing some steam in the face of slower global growth.

The government also warned that the Asian stock market slump
triggered by the European sovereign debt crisis could hurt the Asian
economic growth and undermine Japan’s recovery.

“The Japanese economy is still picking up, although the pace is
decelerating, while difficulties continue to prevail due to the Great
East Japan Earthquake,” it said.

Shigeru Sugihara, director of macroeconomic analysis at the Cabinet
Office, said the government has downgraded its economic assessment
because slowing overseas growth have led to exports leveling off, which
in turn is putting a cap on the recovery in industrial production.

“Industrial production is still picking up although the pace
decelerates,” the government said. “Exports are leveling off.”

Seasonally adjusted Japanese export volume was unchanged in August
from the previous month, down from +0.2% in July and +7.4% in June,
mainly because semiconductor shipments fell, reflecting weakening demand
for chips in the global market.

Meanwhile, the report warned about a slowdown in Asian economies
including China and India, saying, “It is necessary to closely watch the
recent movement of financial markets” in the region.

Asian share prices and currencies have plunged in the past couple
of months as European banks, hit by the sovereign debt crisis, are
shifting their funds out of Asia.

Hiromitsu Shimada, director of overseas economies at the Cabinet
Office, said Asian stock prices and currencies have plunged more
significantly than he had expected previously.

“We will closely watch the impact of the developments in those
markets on the Asian economies,” he said.

Japan relies heavily on exports to bring its economy back on track
after suffering production and shipment losses caused by the earthquake
disaster.

Exports to Asia accounted for about 56% of Japan’s overall exports
in the first half of 2011, which means a sharp drop in Asian demand
could derail Japan’s recovery scenario.

During the 1997-98 Asian financial crisis, GDP of the four Asian
Tigers — Hong Kong, Singapore, South Korea and Taiwan — contracted
2.6% in 1998 after expanding 5.8% in the previous year in the wake of
speculative selling of their currencies.

The crisis made Japan’s economic downturn worse. It had already
slipped into a downturn in June 1997, a month before the devaluation of
the Thai baht, which triggered the regional currency crisis.

Japan’s downward cycle continued through January 1999.

Meanwhile, Sugihara said he will closely monitor the impact of the
massive flooding in Thailand on Japan’s economy.

About 700 Japanese firms operate in Thailand, a key production base
for automakers and electronics firms for their Asian and global markets.

Thailand is also an important consumption area. Japan’s exports to
the country came to 5% of its overall exports in the first half of 2011.

Japanese firms with factories in the flood-hit Ayutthaya Province
in Thailand are looking for alternative sites for their lost production.
The Hi-Tech Industrial Estate in Ayutthaya, located about 60 kilometers
north of Bangkok, is home to plants of nearly 100 Japanese firms.

In its October report, the government also revised down its view on
personal consumption, the largest component of the economy.

“Private consumption is almost leveling off” as both growth in
income and improvement of consumer sentiment have been sluggish, it
said.

tokyo@marketnews.com
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