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Economy

Japan's economy flashes red on falling exports and tax hike

Tokyo cites 'worsening' outlook as trade war saps demand abroad

New job openings in Japan shrank by nearly 6% in August to 917,772. New manufacturing jobs plummeted by 15.9%. (Photo by Kei Higuchi)

TOKYO -- Japan warned of a "worsening" economy on Monday, as the government downgraded its assessment for the first time in four months due to dwindling overseas demand and concerns over the country's recent consumption tax hike.

Some analysts think Japan's economy already has slipped into a downturn, blaming the never-ending trade tensions between the U.S. and China.

"After the domestic economy hit the peak in fall of last year, it has entered into a recessionary phase due to the decrease in exports," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo.

Japanese manufacturers feel the squeeze from slowing foreign demand. Frank Beerman, president of China for DMI Mori Machine Tools Trading, part of DMG Mori, said he is monitoring whether Chinese enterprises will commit to capital expenditures.

The Cabinet Office assessed Japan's economy as "worsening" for August, after the coincident index of business conditions retreated 0.4 point from July to 99.3. The agency last used that term in April.

The U.S.-China trade frictions factored heavily into the data. Japan's soft manufacturing output and deliveries depressed the coincident index.

Domestic employment figures had been robust in previous months, but the number of new job openings shrunk by nearly 6% in August to 917,772. New manufacturing jobs plummeted 15.9%, the seventh straight month of declines.

The Cabinet Office also compiled its downbeat assessment based on indicators from before Japan raised the consumption tax rate to 10% from 8% on Oct. 1. Private consumption has driven the nation's economy in recent months, and the tax hike threatens to sap domestic spending.

Consumption indicators remain weak as consumer attitudes deteriorate, despite government incentives to stimulate spending such as premium shopping vouchers and reward points for using cashless payment options.

But hints of a rebound can be found.

"Almost every client is doing poorly, but orders for semiconductor production equipment products have started to show some activity," said an executive at a machine tool maker.  

Internal demand also shows signs of resilience. Despite worrying manufacturing job numbers, the number of total openings for each job applicant stood at 1.59 in August, a high uncharted since the 1970s. With the Nikkei Stock Average holding steady above 21,000 points, the Japanese equity market has not been a cause of concern for consumers.

"We are in a difficult period and the future is hard to read," Hiroaki Nakanishi, chairman of the Japan Business Federation, or Keidanren, told reporters Monday.

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