Photo/IllutrationRenesas Electronics Corp. plans to suspend operations at this factory in Kumamoto and five others in Japan for up to two months. (Asahi Shimbun file photo)

The Cabinet Office on March 7 downgraded Japan’s economic trends for January from “at a standstill” to “changed to a downturn,” indicating the economy may have entered a recession.

A preliminary report from the Cabinet Office showed that the nation’s latest economic expansion had already ended before January. The government in late January suggested that at six years and two months, it was the longest continuous period of economic growth since the end of World War II.

The report said January’s coincident index, which shows current economic conditions against a 2015 base of 100, was 97.9, a drop of 2.7 points from December and the lowest level in five years and seven months.

It was also the third consecutive month of decline.

Japan’s economic conditions may have reached a peak several months before January. For four months until December, the Cabinet Office assessed the economic conditions as “at a standstill.”

Based on criteria of the index over the past seven months, the Cabinet Office automatically downgraded its assessment for January.

The slowdown of the Chinese economy is having a heavy influence on Japan.

However, the government is not expected to soon say that economic growth has ended.

The government needs to analyze about a year’s worth of data after the peak of economic conditions to officially confirm the end of economic expansion.

Chief Cabinet Secretary Yoshihide Suga said on March 7 that the government still recognizes Japan’s economic conditions as on an expansionary trend.

According to Suga, the decline in Japanese exports to China in January was partly attributable to the earlier start of the Chinese “Chunjie” (spring festival) holiday season, compared with January 2018.

“There was influence from a factor that should be taken into account separately from the economic trends,” Suga said at his news conference.

Toshimitsu Motegi, state minister for economic revitalization, brought up previous assessment downgrades.

“There have been cases in the past in which economic trends were downgraded to ‘changed to a downturn’ but were not recognized as having entered a recession,” he said at a news conference on March 7.

Since starting the economic trend assessments in 2008, the government had used “changed to a downturn” four times before the latest one.

In two of the cases, the government eventually recognized that Japan had entered a recession. Once was in 2008, when U.S. investment bank Lehman Brothers collapsed. The other time was in 2012, when the debt crisis in Europe caused Japan’s economy to slow.

The government did not recognize recessions the other two times because the economic slowdowns were temporary and caused by special factors—the Great East Japan Earthquake in 2011 and the increase in the consumption tax rate from 5 percent to 8 percent in 2014.

The latest downgrade reflects the impact on Japan by sluggish consumption and investment in China, which is currently engaged in a trade dispute with the United States.

Exports and orders for Japanese industrial products to China have fallen.

Renesas Electronics Corp., a Tokyo-based semiconductor maker with many Chinese business partners, said March 6 that it will suspend operations at its six factories in Japan, including one in Kumamoto, for up to two months by September over concerns of bloated inventories.

The downgraded assessment will apparently not affect the government’s plan to further increase the consumption tax rate.

“We will raise the rate to 10 percent in October unless an incident similar in scale to the collapse of Lehman Brothers occurs,” Suga said.

A senior Finance Ministry official said, “The current situation is not as serious as a Lehman-class one.”

However, an opposition party lawmaker said, “Are the current economic conditions an environment where the consumption tax rate can really be raised?”