By Daniel Leussink
TOKYO (Reuters) – Japan’s government on Friday warned that attention should be paid to any possible impact of financial market fluctuations on the economic outlook, while affirming its view that the economy was moderately recovering.
The warning highlights Tokyo’s continued concern about market volatility a week after it intervened in the foreign exchange market to buy yen for the first time in more than 20 years as it sought to halt the currency’s sharp falls.
In a monthly report issued on Friday, the government kept its assessment of economic conditions intact from the previous month, saying the economy was picking up moderately.
It was the first time the government did not make any change to its assessment of the overall economy and its components, such as private consumption, since November 2018.
But the government warned that a slowdown in overseas economies posed a downside risk to the world’s third-largest economy. New manufacturing orders in Japan shrank at the fastest rate in two years this month, a private survey showed on Monday.
In the report, the government warned that attention should be paid to any economic impact from rising prices, supply constraints and fluctuations in financial and capital markets.
“The yen has weakened considerably when looking at the trend in the foreign exchange market since August,” a Cabinet Office official told reporters ahead of the release of the report.
“It can be said that there was a situation where day-to-day fluctuations and volatility were quite high.”
That insecurity about how the yen moves against the dollar and other currencies makes it hard for firms to formulate business plans, the official said.
Japan’s economy grew for a third straight quarter in April-June, expanding an annualised 3.5% in the quarter as the lifting of local COVID-19 restrictions boosted spending by both companies and consumers.
Still, its recovery from a pandemic-induced slump has lagged other major economies.
In particular, high commodity prices and the weakening currency are boosting import costs, increasing the likelihood that households will be forced to pay more for goods and cut back on other spending.
(Reporting by Daniel Leussink; Editing by Kim Coghill)
