Japan's government stuck with its cautiously optimistic outlook for the economy US President Donald Trump's trade policies could dampen global growth and higher inflation could hurt consumer spending.
The government maintained its view on the world's fourth-largest economy, saying it is "recovering moderately" in its monthly report for March, citing strong corporate earnings and wage increases which policymakers hope will boost consumption.
"There are US trade policies which could have direct and indirect impact on Japan, so we highlighted them as risks to the economy," said an official at the Cabinet Office.
Trump's wide-ranging tariff actions and pledges including automobiles, steel and aluminium have spurred worries about the global economy. His policies have ignited trade wars with key commercial partners such as China, Canada, Mexico and Europe.
Referring to Japan's potential trade exposure to those economies, the Cabinet Office report said intermediate good exports including electronic devices account for 60% of Japan's goods exports to China.
The ratio of intermediate goods such as auto parts in the nation's goods exports to Mexico accounts for 60%, while those to Canada account for nearly 50%, the report said.
Still, the government retained its assessment on exports, saying they picked up recently for March as Japan's shipments to Asia were on the rise.
Higher prices were also risks to the economy as Japan's nationwide overall consumer price index rose 4.0% in January, the highest in two years, boosted by fresh food prices.
"It is necessary to pay close attention to the impact on consumer spending from rising prices which dampens consumer sentiment," the official said.
The Cabinet Office raised its view on corporate profits for the first time since September 2023, saying they were "improving".
Private consumption, which accounts for more than half of the economy, was picking up, and capital spending was also recovering, according to the report.
