By Kantaro Komiya

TOKYO, Reuters – Japan has raised its consumption view for the first 13 months. Service spending increased but Japan downgraded its views on production and exports due to supply problems and a slowerdown in China.

This mixed message was reflected in government’s second-month overall economic assessment. It said that it should pay close attention to the downside risk from price fluctuations and supply constraint.

In its November economic report that Prime Minister Fumio Kishhida approved on Thursday, the government stated “The economy continues to show weakness in recovery, even though severe conditions caused by the coronavirus have been gradually easing.”

The report highlighted private consumption as one of the key economic factors. It was the first time that it had done so since October 2020.

A government official said that the pandemic-induced serious situations such as foot traffic have eased after COVID-19 was lifted. This statement came before the Cabinet approved the report.

Japan has relaxed restrictions on large-scale events, restaurant hours and border controls. Infections have dropped dramatically in Japan and 76% of the population is fully vaccinated.

For two consecutive months, the government has decreased its assessment of exports based upon decreasing Asia-bound shipping. The result was weaker production. According to the official, in addition to production cuts by carmakers due to shortages of parts, China’s slowdown has impacted previously high orders for machines and machinery.

The official noted that although disruptions in parts supply from Southeast Asia seem to have subsided, there are still “supply constraints” which must be monitored going forward because the problem of the semiconductor shortage persists. He added that the recent rise in raw materials costs poses a risk for household spending and corporate profits.

Due to falling shipments from Asia, the government has changed its position on imports.

Japan’s economy was third in size worldwide, but contracted faster than anticipated during the third quarter. It fell by 3.0% per year, due to the effects of global supply disruptions and pandemics on capital expenditure, consumption and exports.

An increase in consumer demand is expected to lead to a rebound, according analysts. The government announced a $490 billion record economic stimulus package Friday to further boost the recovery.