Japan cuts economic view for February as omicron rages on

The government on Thursday downgraded its economic outlook for the first time in five months, reflecting weakness in private consumption amid a resurgence of coronavirus infections led by the highly transmissible omicron variant.

The economy “continues to show movements of picking up, although some weaknesses are seen as a severe situation (of economic activities) due to the coronavirus remains,” the Cabinet Office said in its monthly assessment report for February.

The report last month said the economy “shows movements of picking up recently as the severe situation due to the novel coronavirus is gradually easing.”

The latest report said attention should be paid to a potential “further increase in downside risks” from the spread of infections, citing supply-side constraints and higher raw material prices, as well as the effects of fluctuations in the financial and capital markets.

An official who briefed the media on the report said, “We continue to regard the situation in Ukraine as a downside risk” as it impacts raw material and oil prices amid fears over a Russian invasion following its massive military buildup near the Eastern European nation.

By component, the office revised downward its evaluation for private consumption for the first time in five months since September, saying it “appears to be pausing for picking up recently.” The previous assessment said it “shows movements of picking up.”

Of the 47 prefectures, 36 including Tokyo and Osaka remain under a quasi-state of emergency over the spread of the omicron variant. As the measure entails restrictions on establishments, such as shorter business hours and a ban on serving alcohol, it tends to dampen consumption in target areas.

Consumer sentiment was dampened by the quasi-state of emergency and the number of people visiting commercial and entertainment facilities has been on a downward trend since January, the report said.

Looking at trends in people’s credit card spending, service spending, including that on dining, hotel stays and travel, dropped across the board in late January, the official said.

The report said business investment “shows movements of picking up,” an upward revision from the previous report that said it “appears to be pausing for picking up.”

The official said the revision reflects a recovery in software investments following a drop during the previous wave of infections last year.

Assessments of other major components were unchanged. The office said that exports are “almost flat,” and industrial production “shows movements of picking up.”