REPEAT: MNI POLICY: Japan Govt Watching Trade, Disaster Impact

Repeats Story Initially Transmitted at 11:16 GMT Jul 19/07:16 EST Jul 19

By Max Sato

     TOKYO (MNI) - Japan's government on Thursday warned about the drag from

U.S. trade disputes and domestic rain storm damage to factories and supply chain

networks, while leaving its overall view unchanged in July, saying for the

seventh straight month that the economy is "recovering moderately."

     The government downgraded its view on business sentiment for the first time

in two years, saying it is "largely flat," instead of its previous assessment

that it was "improving."

     It maintained its views on key components of the economy: private

consumption and exports are "picking up" while business investment and factory

output are "increasing moderately."

     Earlier this month, the Bank of Japan's quarterly Tankan business survey

for June showed business sentiment marked the second straight drop, hit by

rising raw material costs and uncertainty over the impact of U.S. trade disputes

on global demand.

     --TRADE, DISASTER UNCERTAINTIES

     Looking ahead, the government maintained its outlook that the economy will

continue "recovering," supported by an improvement in labor and income

conditions and the effects of fiscal spending.

     Among the risks to its outlook, it highlighted the impact of trade disputes

on global growth, and noted lingering uncertainty in overseas economies and the

effects of fluctuations in financial and capital markets.

     If the U.S.-China trade row intensifies, it could affect Japanese exports

of high-tech devices and production machines to China while higher tariffs would

push up the costs for some goods that Japan imports, Hideyuki Ibaragi, director

of macro-economic analysis at the Cabinet Office, told reporters.

     The government also called for a close watch on the effects of massive

rainfall and mud slides that hit southwestern Japan in early July, killing more

than 200 people and destroying homes, roads and lifeline infrastructure.

     "There is a high uncertainty over the impact of the heavy rain. On the

macro-economic basis, we have to look at both the lower utilization ratio in the

disaster areas and the higher output in other regions to make up for the lost

production in the disaster areas," Ibaragi said.

     --SLOW CONSUMPTION PICKUP

     Ibaragi also said private consumption is sluggish compared to the recent

pickup in household incomes.

     "I think young people feel insecure about the future and there are

structural issues, such as the spared of the sharing economy," he said.

     The Cabinet Office's Private Consumption Integrated Estimates Index, which

is based on both supply- and demand-side data, posted the first drop in two

months in May, down 0.4% on month after rising 0.7% in April.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com