September 19, 2014 / 1:03 AM / 3 years ago

Japan government cuts economic view, warns of stalling consumption

A woman rummages through her purse in front of a vegetable store at a shopping district in Tokyo July 29, 2014.Yuya Shino

TOKYO (Reuters) - Japan's government cut its overall economic assessment for the first time in five months as private consumption is struggling to recover from the slump caused by April's sales tax hike, clouding the outlook for a sustained recovery.

The government on Friday cut its view on private consumption, which accounts for about 60 percent of the economy, saying that consumer spending is seen pausing although a pick-up trend remains intact.

The assessment followed a run of weak indicators, including falling household spending, which raised doubt about the strength of an expected bounce in the current quarter - a crucial factor for Prime Minister Shinzo Abe's decision in December on whether to proceed with a second tax rise next year.

On Thursday, Japan reported exports declined in August while a survey showed confidence among manufacturers fell the most in nearly two years this month.

"The Japanese economy is on a moderate recovery, while weakness can be seen in some areas," the Cabinet Office said in its monthly economic report for September.

That compared with the prior month's assessment that the economy was on a moderate recovery and that a decline in demand - rooted in the sales-tax hike - was easing.

It was the first downgrade since April in the government's economic assessment, which had been raised in July.

In contrast, the Bank of Japan has maintained its economic view this month, saying the economy continues a moderate recovery despite a decline in demand after the sales-tax hike.

"There's no gap in view between the government and the BOJ as we both see a moderate recovery continuing," said a Cabinet Office official, who is in charge of compiling the report.

The government flagged the risk of a prolonged impact of the tax hike, as well as weaker overseas economies, hurting the Japanese economy in future.

The Cabinet Office official blamed adverse weather this summer as well as lingering impact from the tax hike for dampening private consumption.

Sales of durable goods such as cars and household appliances are languishing, while restaurants and department stores are struggling to lure customers, the official said.

Still, steady improvement in the job market and rising wages are expected to underpin private consumption and the broader economy from now on, the official added.

In its monthly economic report for September, the government left its cautious assessment unchanged for other key components such as capital spending, exports and industrial output.

Reporting by Tetsushi Kajimoto; Editing by Richard Borsuk

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