Japan cuts view on industrial output, vigilant on market volatility

TOKYO, March 22 (Reuters) - Japan's government cut its assessment of the strength of industrial production for the first time in three months in March, pointing to weakening demand in the global semiconductor industry.

Its overall assessment of the economy was unchanged in the monthly economic report, however.

Amid lingering concerns about stress in the world's banking system, the government retained a vigilant stance in relation to economic effects of financial market fluctuations.

Issued by the Cabinet Office, the report said industrial production had weakened recently because the global semiconductor industry had faced a deteriorating market and was therefore buying less fabrication equipment. Japan makes such equipment.

That assessment of industrial production represented the first downgrade since December. Previously, the government had said the recovery trend of industrial production was stalling.

Saying consumer and capital spending were recovering, the government retained its previous overall view of the economy, which it said was "recovering moderately", though there was some weakness.

The government said it would need to pay full attention to effects of "price increases, supply constraints and financial and capital market volatility."

Corporate profits were improving overall, but the pace of recovery had become moderate, the report said, pointing to raw-material price increases weighing on some manufacturers. That was the first downgrade in the assessment of corporate profits since April 2020, contrasting with the previous description of them "improving as a whole but with some weakness".

The government has allocated more than 2 trillion yen ($15 billion) from reserve funds in the fiscal year to March 31 to cushion effects of rising inflation. Measures will include fresh cash payouts to low-income households and subsidies to curb personal electricity bills.

The report said the government expected the Bank of Japan to achieve its price target, based on an assessment of economic activity, prices and financial conditions.

Incoming governor Kazuo Ueda will join the BOJ next month when incumbent Haruhiko Kuroda's term ends, but a global financial market rout this month has complicated his task of smoothly ending the country's ultra-low interest rate policy.

Reporting by Kaori Kaneko; Editing by Bradley Perrett

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