Japan keeping 'close watch' on China Covid surge, cuts view on factory output for first time in 6 months

Tokyo: China’s grim Covid-19 situation has rung alarm bells in several countries including Japan who has said it is keeping a close watch on Beijing with more people falling sick and dying mainly due to Omicron subvariant BF.7.

According to Japan’s monthly economic report for December, apart from paying close attention to China’s Covid situation, the country is also looking at risks from a global economic slowdown, price hikes and supply constraints.

The report from the Cabinet Office comes as Japan, the world’s third-largest economy, wrestles with sluggish global growth and high import costs that have weighed on its exports and manufacturing activity.

Keeping in view the dwindling global demand for semiconductors, the government has cut its view on factory output for the first time in six months. However, it has kept its assessment on the overall economy unchanged by saying it was “improving moderately”.

“If China’s infection situation impacts on supply chains or trades, it could also impact on Japan’s economy as we’ve seen earlier this year,” a Cabinet Office official said.

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Also, for the first time in a year, Tokyo upgraded its view on business sentiment to say it was showing signs of recovery. Earlier, the government said recovery in business sentiment was pausing.

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Japanese companies posted upbeat earnings and those of manufacturers were especially inflated by a weak yen. The government’s support for a domestic travel discount programme and reopening to foreign tourists helped the business mood for non-manufacturers.

In other key economic areas, the Cabinet Office left its view on private consumption unchanged saying it was moderately picking up. It further stated that capital spending was recovering.

The report reiterated that the government expects the Bank of Japan to achieve its 2 per cent price target stably based on the economy, prices and financial situation.

The central bank jolted markets on Tuesday with a surprise tweak to its bond yield control that allows long-term interest rates to rise more, a move aimed at easing some of the costs of prolonged monetary stimulus.

With inputs from Reuters

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