Japanese wholesale prices fell in June at a slower pace after sinking at the fastest rate in four years in May, as a rebound in Chinese demand lifted commodity costs and eased some of the deflationary pressure caused by the coronavirus pandemic.

But wholesale prices fell for an increasing number of goods dependent on domestic demand, such as construction materials and food products, suggesting the damage to Japan’s economy from the health crisis is broadening.

The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, fell 1.6% in June from a year earlier, Bank of Japan (BOJ) data showed on Friday.

The drop was smaller than a median market forecast for a 1.9% fall and less than the 2.8% plunge in May, which was the biggest drop since October 2016.

The drop in oil and nonferrous metal prices eased in June, reflecting a pick-up in demand as China and many advanced economies lifted lockdowns, the data showed.

But the number of CGPI components that saw prices fall exceeded those that experienced price gains by 124 in June, up from 92 in May, reflecting sluggish domestic demand.

“The data shows that weakness in domestic demand caused by the pandemic is weighing on prices,” Ichiro Muto, head of the BOJ’s price statistics division, told reporters.

“Economic activity hasn’t normalised completely, so it won’t be surprising if weak demand keeps pressure on wholesale prices for some time,” he said.

Japan’s economy slipped into recession and is set to suffer a more than 20% annualised contraction in April-June, after the government in April urged citizens to stay home and businesses to close.

Although the state of emergency was lifted in late May, analysts expect the economy to recover only moderately in the face of the pandemic’s sweeping global impact.

Meanwhile, Japanese shares closed at a one-week low on Friday as a spike in fresh COVID-19 cases at home and abroad fuelled concerns that the path to economic recovery could be hindered, while the market braced for further corporate earnings pain.

The benchmark Nikkei share average slipped 1.06% to 22,290.81, its lowest close since July 2, with only 21 advancers on the index against 202 decliners.

The broader Topix dropped 1.42% to 1,535.20, also marking its lowest close since June 15.

All 33 sector sub-indexes on the Tokyo exchange traded in the red.

More than 60,500 new COVID-19 infections were reported across the United States on Thursday, the largest single-day tally record, stoking fears that new lockdowns could take a toll on the economic recovery.

Japan’s capital Tokyo also continued to see a record daily number of fresh COVID-19 cases, marking 243 new infections on Friday,

Highly cyclical mining, securities brokerages and real estate were the top three worst performers on the main bourse.

Fast Retailing Co slipped 3.34% after Uniqlo owner lowered its annual outlook as coronavirus-led store closures and weak consumer spending restrained the company’s growth.

Hideyuki Ishiguro, senior strategist at Daiwa Securities in Tokyo, said investors also awaited earnings report from Yaskawa Electric Corp due later in the day.

The motion control equipment maker has high exposure to China, and its earnings announcement will be a touchstone to help determine the impact the pandemic has had on manufacturing industry.

Other notable movers included Ryohin Keikaku, shedding 5.38% after the company said its US subsidiary filed for bankruptcy protection due to coronavirus.

Bucking the overall losses, Sony Corp gained 2.7% following media reports about the company making a $250 million strategic investment in Epic Games, the creator of “Fortnite”.

The Bank of Japan is set to keep monetary policy steady next week and offer a cautiously optimistic view on the economic outlook, signalling it has taken enough steps for now to cushion the blow from the coronavirus pandemic, sources told Reuters.

The BOJ may slightly cut its growth forecast for the current year to March 2021, but will stick to its view Japan is headed for a moderate recovery later this year as the pandemic’s impact subsides, the sources familiar with its thinking said.

“The economy will remain weak for some time but isn’t falling off a cliff,” one of the sources said.

Reuters