Japan’s government raised its assessment of the economy for the first time in eight months as it sees stimulus spending and improved conditions for exporters driving a recovery from recession.
“The recovery is expected to resume while supported by the improvement of export conditions,” the Cabinet Office said in a monthly report released in Tokyo today, after it downgraded its assessment in four of the last seven months.
The government announced 10.3 trillion yen ($117 billion) in stimulus earlier this month to boost growth and end deflation. Stocks fell and the yen rose for a third day today after the Bank of Japan yesterday set a 2 percent inflation target with no deadline and delayed extra easing for a year.
“The economy is recovering because production has been strong,” said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management in Tokyo. “We may see a slowdown from 2014 when the effects of Abe’s policies begin to wear off.”
Goldman Sachs raised its real gross domestic product growth forecast for the year starting April 2013 to 2 percent from 1.2 percent, it said in an e-mailed note to clients today. “Public works in the stimulus package, yen depreciation that has factored in anticipated monetary policy changes, and the attendant improvement in corporate and household sentiment” were reasons cited for the increase.
The yen was 0.4 percent higher at 88.35 per dollar at 5:05 p.m. in Tokyo after strengthening yesterday by the most since May. The currency has fallen almost 7 percent in the last two months, the most among 16 major currencies tracked by Bloomberg.
The Nikkei 225 Stock Average closed 2.1 percent lower, falling for a third day after climbing for 10 weeks in anticipation of the BOJ joining Abe’s administration in strengthening measures to lift the economy.
In another sign of the challenges facing Abe, companies’ demand for credit declined in December from three months earlier, according to a survey of senior loan officers released by the BOJ today.
Japan’s economy contracted for a third quarter in the October-to-December period, shrinking by 0.6 percent, according to the median estimate in a Bloomberg survey of economists. Goldman Sachs predicts that public works will power GDP growth to 3.2 percent in the three months from April.