Tokyo: The Japanese government has downgraded its assessment of corporate earnings, citing stagnation caused by the impact of higher US tariffs on automakers and other manufacturers.

According to Emirates News Agency, in its monthly economic report for August, the Cabinet Office maintained its overall view that the domestic economy is 'recovering at a moderate pace,' supported by strong business investment, particularly in digitalization among non-manufacturers. The office noted, "The effects caused from the US trade policies and so on are seen in some areas," as it lowered its evaluation of corporate earnings for the first time in eight months. The report emphasized that the impact on corporate investment and employment should be closely monitored.

Last month, the report indicated that profits were improving, though it highlighted the need for attention concerning the effects of trade issues. In late July, Japan agreed to 15 percent tariffs for cars and other products imported by the United States. These reciprocal tariffs took effect on August 7 without Japan being granted an exemption from tariff stacking, meaning the United States would add a country-specific rate on top of pre-existing duties. The U.S. government later admitted an error in the related presidential executive order and stated it would refund any excess duties collected due to the mistake.

Under the agreement, US tariffs were reduced to 15 percent from the current 27.5 percent for cars and auto parts from Japan. However, the timeline for when the lower rate will take effect remains unclear. The office reported that exports were 'almost flat,' leaving its assessment unchanged from the July report.

The evaluation of private consumption, which accounts for more than half of Japan's economy, was also maintained, though the report noted that 'the improvement in consumer sentiment is slow.' Among other components, the office's assessment of public investment was upgraded, while that for housing construction was lowered.