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Natural disasters

Flood and quake knock down Japan's economy to 'weakening'

Business outlook suffers first downgrade in two years

Electrical poles knocked down by typhoon winds block roads in Osaka Prefecture in September. 

TOKYO -- The earthquake and typhoons that struck Japan in September have caused the government to lower its assessment of the nation's industrial picture for the first time in two years.

The Cabinet Office on Wednesday described business conditions in September as "weakening," as opposed to "improving," an appraisal it had held consistently since October 2016. The downgrade was automatically triggered by the three-month average in business conditions falling too steeply.

Western Japan was flooded in early September by one of the most powerful typhoons to pass through the country in decades, which shut down the international airport in Osaka. This was followed almost immediately with a magnitude 7 earthquake in Hokkaido, causing widespread blackouts in the northernmost prefecture. Another typhoon hit western Japan at the end of the month.

The natural disasters forced factories to suspend production and disrupted logistics networks. The coincident index -- the Cabinet Office's gauge for current business conditions -- sank 2.1 points in September to 114.6. Out of the nine components that determine this index, all seven included in Wednesday's preliminary report pointed downward.

The manufacturing sector saw some of the strongest negatives. Steel, electronic components and transport machinery all lagged.

The leading index, which provides the outlook a few months ahead, dropped 0.6 point to 103.9.

It is unclear how much the trade war between China and the U.S. has affected Japanese business health. "Natural disasters had a major impact on the economy between July and September, but the coincident index was already softening well before then," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. Shinke believes the global economic slowdown could already be weighing on Japanese exports.

Koya Miyamae, senior economist at SMBC Nikko Securities, said the global slowdown "has not figured in Japan's current business indicators." But he said market watchers should keep a close eye on indicators in October onward to determine whether the change in business conditions is temporary or part of a larger trend.

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