By Leika Kihara
TOKYO (Reuters) – An index measuring the health of Japan’s economy fell for the second straight month in February, government data showed on Friday, in a sign of weakening momentum after the country narrowly avoided a recession in the fourth quarter.
The government downgraded its assessment on the index for the first time since February 2019, underscoring the fragile nature of Japan’s recovery that could complicate the central bank’s deliberations on future interest rate rises.
The coincident indicator index, which measures the current state of the economy, fell 1.2 points in February from the previous month to 110.9, the data showed.
The decline was due to slumping exports and factory output, suggesting the fallout from auto production disruptions is widening.
“The index is showing a shift toward a downward phase,” the government said, revising down its assessment to one that suggests the economy may have hit the peak of a boom-and-bust cycle in the past few months.
Japan’s factory output unexpectedly fell in February due to production and shipment disruptions at Toyota Motor (NYSE:) and its small-car unit Daihatsu, which could weigh on the broader economy due to their huge presence in the country’s manufacturing sector.
Consumption also remains weak as rising living costs hit households before they see wage growth exceed the pace of inflation, leading some analysts to project Japan’s economy to have shrunk in the first quarter.
Japan’s fourth-quarter gross domestic product figures were revised up to a positive 0.4% annual growth rate from an initial 0.4% contraction, allowing it to avoid a technical recession.
In an interview with Asahi newspaper that ran on Friday, Bank of Japan Governor Kazuo Ueda said the recent weakness was likely temporary and that there was no change to the bank’s view that the economy was recovering moderately as a trend.
