Japanese government keeps economic view in June with reduced virus risk

The government retained its view that some sectors of the Japanese economy are experiencing increased weakness in its monthly report for June, indicating Thursday more optimism about the outlook with lessening risk from the coronavirus pandemic.

The Japanese economy shows “further” weakness in some components and remains in a severe situation due to the pandemic, the Cabinet Office said in the report describing the overall economic situation, using the same wording as the May report which downgraded the evaluation for the first time in three months.

Looking ahead, the office said the economy is expected to continue picking up as the government promotes its vaccine rollout, but warned that full attention should be given to the impact of the pandemic on domestic and overseas economies.

In the previous month, it had warned of “downside risks” due to the virus spread. The office omitted reference to such risks for the first time since March.

A government official told reporters it reflected the lifting Monday of the country’s third state of emergency over the virus in nine prefectures.

Among the nine areas, seven including Tokyo have shifted to a quasi-state of emergency, allowing targeted anti-virus measures for specific areas rather than entire prefectures.

Only Okinawa will continue under the emergency until July 11 as hospitals in the southern island prefecture remain strained from a surge in virus patients.

The latest report also did not refer to the economic impact of the Tokyo Olympics starting on July 23, with the official saying the major international sporting event is expected to deliver only a small boost in consumption as it will be held without overseas spectators.

As for domestic spectators, Olympic organizers have said venues can be filled to 50% of capacity, up to a maximum of 10,000 people, with no alcoholic beverages sold at the venues. They have left open the possibility of hosting the games behind closed doors if the virus infection situation worsens.

By component, the office maintained its evaluation for private consumption, saying it “shows weakness further recently, especially in service spending.” It was revised downward in May, changed from the April report that said consumer spending had shown “a weak tone recently.”

The report upgraded its assessment of housing construction for the first time in five months, saying it has shown firmness supported by an increase in the construction of rental apartments.

Views on other major components were unchanged. The office said exports “continue to increase moderately,” while assessing both business investment and industrial production as “picking up.”