Japan has cut its economic outlook after Reuters fell to its lowest low last year

By Yoshifumi Takemoto and Kantaro Komiya

TOKYO (Reuters) – Japan has cut back on economic conditions for more than two years since the index of coincidence indicators extended its decline in September from its one-year low.

The index, which shows the current economic situation, based on data including factory production, employment and retail sales, fell from 87.5 points in the previous month to a previous 3.8 points, the Cabinet Office said, down for the third consecutive month. It was the biggest drop since May 2020.

The government on Monday downgraded the index’s rating to “weaken” in its first drop since “improvement” in August 2019.

The world’s third-largest economy is projected to decline 0.8% year-on-year in the July-September quarter, mainly due to declining consumption, a Reuters survey of economists showed on Friday.

The economic impact of the pandemic would lead to a recovery in Japan’s stagnation, following a 3.9% contraction in the first and second quarters and a 1.9% year-on-year increase, respectively.

Analysts expect growth to grow from October to December, thanks to strong private spending, along with easing COVID-19’s limitations, but external concerns stem from supply chain disruptions to China’s economic slowdown.

In the September coincidence indicator index, stagnant shipments of cars and their components, as well as a slowdown in exports and factory production – dragged down by the auto industry – contributed to its long-term decline, a government official said at a news conference on Monday.

“Automakers appear to be reducing production cuts by November and will increase production by the end of this year (March), but the low-risk supply chain will continue to need attention for a while,” the official said.

The index of key economic indicators, which was used a few months earlier to predict the direction of the economy, fell 1.6 points in September to 99.7, the seven-month low, the government also said.