On November 22, 2023, Japan’s government downgraded its view on the economy for the month. This was the first such downgrade in 10 months, as weak demand weighed on capital spending and consumer expenditure. The government also cut their view on capital expenditure for the first time since December 2021, stating that the pace of recovery was “pausing.”

The new assessment by the Cabinet Office came after data last week showed that the economy shrank in July-September for the first time in three quarters as demand waned. According to the government’s report issued by the Cabinet Office, “The economy is recovering moderately, although some areas showed stalemate recently.”

Despite improvements in business conditions and firms’ earnings, the strength of the corporate sector did not necessarily translate into wages and investment. Domestic demand such as corporate investment and consumer spending lacked strength, according to an official at the Cabinet Office. Inflation squeezed consumer goods spending while spending on services such as eating out maintained an uptrend.

Prime Minister Fumio Kishida’s government compiled a package of measures this month involving spending of more than 17 trillion yen ($113 billion) to offset inflation’s impact on the economy. The government expects