Japan cuts economic assessment to ‘weakening’ in September index report

The government on Monday lowered its assessment of the country’s economy for September to “weakening,” the first downgrade in over two years, based on a key business index that worsened as a global chip crunch and supply chain disruptions hit automakers.

The Cabinet Office revised downward its view by one notch from “improving” in the previous month, the most optimistic expression in the five-level evaluation, as the coincident index of business conditions for the reporting month fell 3.8 points from August to 87.5 against the 2015 base of 100.

The index, which reflects the current state of the Japanese economy, fell for the third straight month, following 0.2 point and 3.1 point drops in July and August, respectively.

It was the first downward revision since August 2019, when the office revised its assessment from “bottoming out” to “worsening,” the most pessimistic designation.

The result came as the worldwide semiconductor shortage, as well as parts shortages triggered by factory shutdowns in Southeast Asian countries due to a surge in coronavirus infections, have forced Japanese automakers to reduce production.

Citing the situations as “restraining factors,” a Cabinet Office official told reporters that the government needs to “monitor closely downside risks affected by supply chain disruptions for the time being.”

The official added that the 3.8 point decline in the coincident index is the sharpest fall since a 7.1 point plunge registered in May last year amid the initial blow of the pandemic.

In the reporting month, shipments of durable consumer goods such as cars and motorcycles plunged 32.8% from the previous month, contributing most to the overall outcome.

Indices representing the levels of industrial goods shipments and industrial production both sank for the third month in a row, down 7.2% and 5.4%, respectively.

Sales of retailers and wholesalers also remained sluggish as the government asked people to stay home, and restaurants and bars to close early and refrain from serving alcohol under a months-long emergency through the end of September to curb a virus resurgence.

The measure was completely lifted Oct. 1 as the nation has been seeing a sharp drop in new virus cases amid progress in the government’s vaccine program. Restrictions on economic activities have accordingly been relaxed in stages.

The leading index of business conditions, forecasting the situation in the coming months, fell 1.6 points to 99.7 in September, down for the third consecutive month.