Japan economy: latest poll sees Omicron risk

In the latest Reuters poll, analysts have trimmed their forecast for Japan's gross domestic product in January-March, although some say the depth of Omicron's impact remains unclear and depends on the severity of government-imposed curbs to come.

The economy shows movement of pick-up as severe conditions due to the coronaviruses are gradually easing, according to the monthly report approved by Prime Minister Fumio Kishida's cabinet on Tuesday. The report listed the COVID 19 outbreak as a downside risk to the economy, which requires full attention for the first time in four months, due to the recent spread of the Omicron variant.

On Monday, the governors of Tokyo and surrounding prefectures said they were seeking reinstatement of some curbs including shorter restaurant hours in the metropolitan area, which were previously lifted in September.

The supply chain constraints and the trend of raw material prices are the downside risk factors, the same as they were in the previous month's report.

The government raised its assessment of production for the first time since November 2020 due to a strong automobile-led rebound in factory output.

A government official told a press conference ahead of cabinet approval that growth in transport machinery production has started to affect other manufacturers, such as plastic products.

The government changed its view on wholesale inflation by adding a reference to the slowing pace of increase, given the month-on-month fall in December, although the year-on-year gain stayed near a record high.

The government maintained its assessments of consumer prices and other key economic elements such as exports, private consumption and employment despite a gradually accelerating inflation reading.

On the Omicron variant, authorities are wary about its potential damage to consumption, as the Delta variant last year caused a larger than expected contraction in the third quarter.

The spread of Omicron hasn't had a big effect on private consumption, according to the official, citing high-frequency spending and retail foot traffic data as of early this month.

He said that the latest outbreak could drag down household spending on face-to- face services such as restaurants and travels because of past episodes of coronaviruses.