Japan cut its view on the overall economy for the first time in 11 months in January, as China's COVID-19 infections and a slowdown in global demand for tech and semiconductors hurt exports, especially to Asia.
The government expects the economy, the world's third largest, will pick up going forward but Japan needs to pay full attention to the impact from China's spreading infections after it dropped stringent pandemic curbs, the report said.
The economic downgrade followed the Bank of Japan's move last week when it slashed its economic growth projections for the next two fiscal years amid worries that slowing global demand will weigh on Japan's export-reliant economy.
"The economy is recovering moderately but some weakness is seen recently," according to the latest report by the Cabinet Office.
The authorities slashed its assessment on exports for the first time since November 2011, while it also cut its view on imports for the first time in three months. The January report said both exports and imports are "weakening recently" compared with its previous view of "almost flat" last month.
"China's coronavirus rebound could affect Japan's exports and production and such a possibility has become clearer than last month," said an official at the Cabinet Office.
The government also remained cautious over downside risks from the global economic slowdown amid monetary tightening, inflation and financial market fluctuations.
Meanwhile, the Cabinet Office maintained its assessment of Japan's domestic demand, saying private consumption was "picking up moderately" in the latest report.
But the government said the recovery in industrial production was stalling, unchanged from its view in December. (Reporting by Kaori Kaneko; Editing by Jacqueline Wong)