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Japan upgraded its view on production for the first time in more than a year in a January report, while noting looming risks that the outbreak of the Omicron variant of COVID-19 could cool the nascent consumption-driven recovery of the economy.

Analysts in the latest Reuters poll have cut their forecast for Japan’s gross domestic product in January-March, though some say the depth of Omicron’s impact remains unclear and depends on the severity of government-imposed restrictions. .

“The economy is showing signs of recovery as the severe conditions due to the coronavirus are gradually easing,” the government said in the monthly report approved by Prime Minister Fumio Kishida’s cabinet on Tuesday.

However, the report listed the COVID-19 outbreak as a downside risk to the economy requiring “full attention” for the first time in four months given the recent rapid spread of the Omicron variant.

On Monday, the governors of Tokyo and surrounding prefectures said they are seeking the reinstatement of some restrictions, including shorter restaurant hours in the metropolitan area, which were lifted earlier in September. read more

In addition to the coronavirus, authorities also pointed to supply chain constraints and commodity price trends as downside risk factors, unchanged from the previous month’s report.

The government raised its assessment of output for the first time since November 2020, reflecting a strong auto-led rebound in factory output.

“The growth in the production of transportation machinery has started to positively affect other manufacturers, such as plastic products,” a government official told a news conference ahead of the cabinet approval.

The government modified its view on wholesale inflation by adding a reference to the “slowing rate of increase” given the month-on-month drop in December, although the year-on-year gain remained near an all-time high.

Despite a gradually accelerating inflation reading, the government stood by its assessments of consumer prices and other key economic elements such as exports, private consumption and employment.

As for the Omicron variant, the authorities are wary of its possible damage to consumption, since last year the Delta variant caused a greater than expected contraction in the third quarter.

“So far, the Omicron spread has not had a big effect on private consumption,” the official said, citing high-frequency spending and retail foot traffic data from earlier this month.

But considering previous episodes of coronavirus spread, the latest outbreak may reduce household spending on face-to-face services such as restaurants and travel, it added.

https://www.reuters.com/markets/asia/japan-raises-view-production-signals-omicron-risks-2022-01-18/

Category: Japan

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