Japan's government maintained its view on Tuesday that the economy is steadily picking up, but a government official warned that recent gains in the yen have been sudden and are undesirable for growth.
The dollar has been hovering near a 15-year low against the yen on speculation that the Federal Reserve could ease policy further after a string of weak data fanned fears that the U.S. economic recovery is slowing.
While the dollar has bounced back somewhat, Japanese policymakers have stepped up verbal warnings against the yen's surge as it makes Japanese exports more expensive overseas and could potentially harm the economy.
In its monthly report for August, the government stuck to its assessment that the economy is steadily picking up, as well as its warning that financial market moves and deflation are risks to Japan's economy.
A senior government official who briefed reporters said the government was also monitoring currency moves closely.
"One can generally say that sudden currency moves are undesirable, and from that standpoint I think we can say recent yen gains have been sudden," Keisuke Tsumura, parliamentary secretary at the Cabinet Office, told reporters.
The government downgraded its assessment of industrial output for the first time in 1 ½ years, saying it is "recovering slowly." Previously, the government said output was "recovering." Industrial output fell in June for the first time in four months due to slowing export growth.
In the report, the government repeated that it will work with the Bank of Japan to overcome deflation, which it described as a top priority.
The BOJ is expected to stand pat on monetary policy in a board meeting ending on Tuesday, judging that yen rises so far have been moderate enough to hold off digging into its depleted policy arsenal.
Policymakers globally are struggling to respond to evidence that slower growth in China, as well as the United States, could point to a more moderate recovery for the world economy.
"External demand and stimulus measures have been driving Japanese growth, but the pace of exports is slowing and government subsidies will expire later this year," Tsumura said.
"Japan's economy could enter a lull if overseas economies slow further."
Japan's economy likely grew 0.6 percent in the April-June second quarter, slower than a 1.2 percent expansion in the previous quarter as strength in exports and consumption eased, a Reuters poll showed. GDP data for the quarter is due out on Aug. 16.
Still, the government stuck to its assessment that exports are increasing moderately due to rising shipments to the United States.
© 2017 Thomson/Reuters. All rights reserved.