Outlook for the Japanese economy remains cautiously optimistic, warning of potential risks from US trade policies.

In the economic report released by the Japanese government on Thursday, it maintained a cautious optimism about the country's economy as a whole, while warning of the downside risks that may come from US trade policies. The monthly economic assessment report released by the Japanese Cabinet Office in January reiterated that as the world's fourth largest economy, Japan's economy is in a mild recovery. However, it emphasized the impact that US policies could have on the Japanese automobile industry, and pointed out the need to remain highly vigilant against market fluctuations. Private consumption, which accounts for over 50% of Japan's economy, has been judged to have remained unchanged for the fifth consecutive month, still described as "showing signs of recovery." The only significant adjustment in this economic assessment is focused on the trade and services balance, with the assessment changing from "in deficit" to "basically balanced." In terms of prices, the report notes that the inflation-driving food prices have seen a decrease, and the government will closely monitor whether this trend of slowing down in price inflation can continue. However, the significant depreciation of the yen since October last year has added more uncertainty on whether the cost-push inflation pressure as expected by the Bank of Japan will smoothly ease. Due to the impact of high tariffs leading to a decline in exports, Japan's economy contracted at an annual rate of 2.3% in the third quarter, marking the first negative growth in six quarters. Meanwhile, after the Bank of Japan recently raised the benchmark interest rate to 0.75%, reaching a 30-year high, the market expects that it will keep interest rates unchanged at the two-day monetary policy meeting ending on Friday. Political developments have also further heightened economic uncertainty. Japanese Prime Minister Naoto Kan announced on Monday that a snap election for the lower house of the parliament will be held on February 8, seeking voter support for his policy agenda, including expanding government fiscal expenditures and implementing a two-year suspension of the consumption tax on food. Market concerns over this move may worsen Japan's already strained public finances, and the related proposals have triggered a broad decline in bonds, foreign exchange, and stock markets.