A key Japanese economic index fell in August and the government on Monday downgraded its view to “worsening”, indicating the export-reliant economy might face slipping into recession.
Concerns have risen as the U.S.-China trade dispute and slowing external demand dent Japan’s economic recovery.
The index of coincident economic indicators, which consists of a range of data including factory output, employment and retail sales data, slipped a preliminary 0.4 point in August from the previous month, the Cabinet Office said on Monday.
The separate index for leading economic indicators, a gauge of the economy a few months ahead that’s compiled using data such as job offers and consumer sentiment, dropped 2.0 points from July, the Cabinet Office said.
The last time the government gave a “worsening” assessment was for April data.
The downgrade could add to speculation the government will hike spending, as Prime Minister Shinzo Abe on Friday said he was ready to take “all possible steps” if risks to the economy intensified following a sales tax hike and rising global uncertainty.
Japan rolled out a twice-delayed increase in the sales tax to 10% from 8% on Oct. 1. The move is seen as critical for fixing the country’s tattered finances but could tip the economy, hurt by the U.S.-China trade war and weak external demand, into recession.
For April-June, Japan reported growth of 0.3% from the previous quarter. The last time Japan was in a technical recession, defined as two consecutive quarters of contraction, was the second half of 2015.
In recent months, the government’s assessment on the coincident index was that the economy likely stopped falling.
The government will later examine the economy comprehensively with professors and economists on a panel and officially define the country’s economic cycle.
Japan’s growth has slowed as the U.S.-China trade dispute hit the country’s exports, sending big manufacturers sentiment – as measured by the Bank of Japan’s tankan survey – to a six-year low in the July-September quarter.
Market expectations for more policy easing by the Bank of Japan have increased after the central bank signaled its readiness to expand stimulus as early as its Oct. 30-31 meeting.