Economy 'worse': Cabinet

The government lowered on Monday its assessment of the economy for the third straight month, using the word "worse" for the first time in about seven years, on the back of sharply falling corporate profits, capital spending and job opportunities.

Sharing a joke: Economic and fiscal policy minister Kaoru Yosano (center) chats with Prime Minister Taro Aso during a ministers' meeting that adopted the Cabinet Office's monthly economic report Monday. KYODO PHOTO

"The economy is worsening," the Cabinet Office said in its monthly economic report for December, a downgrade from the previous month's evaluation that "the economy has weakened further."

This is the first time since February 2002 that the office has adopted the word "worse" in its monthly overall assessment.

The last time it used an expression like the economy is "worsening" or "continues to worsen" was between June 2001 and February 2002, when Japan struggled with the fallout from the collapse of the information technology bubble.

"I find it difficult to imagine that there will be a pickup" in the economy in the near future as "there are many uncertain elements" abroad, economic and fiscal policy minister Kaoru Yosano said at a news conference after the release of the December report.

The report conjures up bleak prospects, saying, "While the economy is likely to continue worsening for the time being, there is fear that the employment situation is worsening further due to the rapid reduction in production.

"Attention should be given to the risks that the economy could become severer due to the worsening global financial crisis," it says.

It says the corporate segment in particular is faltering and lowers the ratings for a range of key areas, including capital spending, corporate profits, housing starts, industrial production and job conditions.

For the first time ever, the report says, "The employment situation is rapidly getting worse."

Although the report keeps its assessment of consumer spending unchanged in December, saying it is "almost flat" — with "some weak movements" seen lately — Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office, said he cannot be optimistic about the outlook.

"A decline in household consumption normally lags behind a setback in the corporate sector," Nishizaki said. "That was also the case when the IT bubble collapsed."

The dismal view is in line with a series of recent poor economic figures.

Earlier this month, the Bank of Japan's "tankan" survey said business sentiment among big manufacturers over the past three months fell the most in almost 34 years.

In the quarterly survey, the key index for large manufacturers dropped 21 points to minus 24, suffering its steepest slide since February 1975.

The latest forecast by the Japan Automobile Manufacturers Association has shown new vehicle sales in the domestic market in 2009 will probably fall below 5 million for the first time since 1978.

The Cabinet Office's monthly report downgrades its assessment of the global economy for the fourth consecutive month as a result of slowing business conditions in Asia.

It says the Asian economy is slowing, a change from the previous month's "showing signs of slowing." But it leaves unchanged the evaluations that the U.S. and European economies are in recession.

The report says for the first time the Chinese economy is "slowing."