— Cabinet Office: Increased Govt Confidence In Self-Sustained Recovery
— But Govt Still Cautious, Not Ready To Declare Economy is Recovering

TOKYO (MNI) – The Japanese government on Friday upgraded its
overall assessment of the economy, saying that Japan’s economy has been
picking up steadily and the foundation for a self-sustaining recovery is
being laid.

However, the government remained cautious, continuing to warn that
downside risks remain, including a possible slowdown in global growth
led by Europe.

“Although the economy has been picking up steadily and the
foundation for a self-sustaining recovery is being laid, conditions
remain difficult, with a high unemployment rate,” the government’s
latest economic report said.

The report used the word “recovery” is the first time since July
2008, while the upward revision of the economic assessment was the first
in three months. But the government remained cautious about the outlook,
stopping short of saying that the economy “is recovering.”

“Attention should be given to the risks that the economy will be
depressed by a possible slowdown in overseas economies, especially in
Europe, fluctuations in the financial and capital markets, and the
influence of deflation. It should also be noted that there is still
concern that the employment situation could deteriorate,” the report
said.

The government’s economic assessment is now more in line with the
Bank of Japan’s economic view released on Wednesday that Japan’s economy
is showing further signs of a moderate recovery induced by improvement
in overseas economic conditions.

Keisuke Tsumura, parliamentary secretary of the Cabinet Office for
economic and fiscal policy, said that there is “no gap” between the
government and BOJ assessments of the economic trend.

In May, the government and the BOJ appeared at odds in their
assessments, as shown by the differing wording in describing economic
conditions. Then, the government left its overall assessment of the
economy unchanged, saying growth is “picking up steadily.” This was in
contrast to the BOJ, which upgraded of its view to say the economy was
in a “recovery” stage.

Tsumura said that the upward revision of the government assessment
in June doesn’t mean that the government has declared that the economy
is in strong shape.

“We have confirmed that capital spending is leveling off. The
development of capital spending is one key factor for us in judging a
self-sustained recovery. The foundation for a self-sustained recovery is
being laid. But we still judge that the economy is picking up, not
recovering.” Tsumura told reporters.

The government’ confidence that a self-sustained recovery is
occurring has increased, he continued, but added that the development of
capex, private consumption and employment need to be watched closely
before declaring the more positive assessment that the economy is
recovering.

Japan’s unemployment rate rose to 5.1% in April from 5.0% in March.

On individual growth components, the government upgraded its
assessment of capital spending for the first time in three months,
saying: “Business investment is leveling off.” In May, the government
said that business investment was “starting to level off.”

The brighter assessment of investment is backed by strong machinery
orders.

Japan’s core private-sector machinery orders continued to rise
sharply in April, up by a seasonally adjusted 4.0% from the previous
month after jumping 5.4% in March.

The Cabinet Office also upgraded its assessment of machinery orders
for the second month in a row, saying: “there are signs of a pick up.”

In contrast, the Japanese government downgraded the assessment of
housing and public investment.

The government left other economic components, such as exports,
industrial production, corporate profits and labor market conditions,
unchanged from the previous month.

Japan’s economy expanded a solid 1.2% in real terms in
January-March from the previous quarter, unrevised from the initial
reading released last month, the Cabinet Office said on June 10. It was
the fourth straight quarter of growth,

Revised data confirmed that the current recovery from the global
recession has been underpinned by strong exports to Asia, continued
gains in consumer spending and a recovery in business investment.

On an annualized basis, GDP rose 5.0% in the first quarter of 2010,
revised up slightly from a preliminary 4.9% rate.

A Cabinet Office panel tasked with studying economic indexes
unanimously concluded on June 7 that Japan’s latest recession started in
November 2007 and hit bottom in March 2009, and that the health of
exports played a major role in the state of the economy.

The panel concluded that the economy has entered the 15th month of
expansion.

tokyo@marketnews.com
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