Japan cuts economic view after key indicator falls to lowest in a year

FILE PHOTO: People walk at a crossing in Shibuya shopping area, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan August 7, 2021. REUTERS/Androniki Christodoulou

By Yoshifumi Takemoto and Kantaro Komiya

TOKYO (Reuters) - Japan cut its view on economic conditions for the first time in more than two years after the coincident indicator index extended its decline in September, falling to the lowest in a year.

The index showing current economic conditions, compiled from data including factory output, employment and retail sales, slipped a preliminary 3.8 points from the previous month to 87.5, the Cabinet Office said, marking the third consecutive month of decline. The fall was biggest since May 2020.

The government on Monday lowered its assessment of the index to "weakening" from "improving" in its first downgrade since August 2019.

The world's third-largest economy was forecast to have shrunk an annualised 0.8% in the July-September quarter, largely because of slumping consumption, a Reuters poll of economists showed on Friday.

It would highlight Japan's stop-and-go recovery from the economic impact of the pandemic, after annualised 3.9% contraction and 1.9% growth in the first and second quarter, respectively.

Analysts expect growth will pick up in October-December period thanks to robust private spending with the easing of COVID-19 curbs, but external concerns ranging from global supply chain disruptions to China's economic slowdown loom.

On the September coincident indicator index, stagnant shipments of cars and its components as well as slowing exports and factory output - dragged down by the auto industry - contributed to its extended fall, a government official told a news conference on Monday.

"Automakers appear to bottom out their production cuts by November and increase output toward the end of this fiscal year (in March), but downside risks from supply chain will continue to require attention for a while," the official said.

The index of leading economic indicators, used to predict the direction of the economy a few months ahead, decreased 1.6 points in September to 99.7, a seven-month low, the government also said.

(Reporting by Yoshifumi Takemoto and Kantaro Komiya; Editing by Jacqueline Wong and Gerry Doyle)

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