— Cabinet Office: Self-Sustained Recovery Not Yet In Place

TOKYO (MNI) – The Japanese government on Wednesday repeated its
overall assessment of the economy, saying it has been “picking up
steadily,” but remained cautious about how soon the economy could return
to a self-sustained growth track.

The government is watching for downside risks arising from slower
demand for Japanese exports from Europe and the U.S. while it is also
monitoring upside risks from a series of stimulus measures.

“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,” it said in its monthly
report for July.

Last month the Cabinet Office revised up its assessment for the
first time in three months but it still did not say the economy is
“recovering.” This is in contrast to the Bank of Japan, which has been
saying since May that the economy has reached a “recovery” stage.

“We are almost there but we cannot yet say we have a self-sustained
recovery,” Keisuke Tsumura, parliamentary secretary of the Cabinet
Office for economic and fiscal policy, told reporters.

“The economy could mark time on a plateau, so we need to see how
things develop for a little longer,” he said.

“At the same time, we must watch for upside risks now that we have
begun providing child allowances (to families with children up to ninth
grade) and made some highways toll-free.”

The government has also started paying subsidies to make high
school education basically free, effective in April, and has extended
tax breaks for buying low-emission vehicles and its reward program for
purchases of greener consumer electronics.

The Cabinet Office regards consumer spending as “picking up” on
average, although there has been a pullback in durable goods spending
after a surge through March.

Business confidence is “improving” but firms, particularly smaller
ones, are cautious about the outlook, it said.

The government did not upgrade its view on business confidence even
though the BOJ’s Tankan quarterly business survey for June released on
July 1 showed a continued improvement in sentiment and more positive
investment plans.

That’s because Japan has seen some softer data recently.

The Economy Watchers’ Survey index for current conditions, released
by the Cabinet Office, posted the second straight monthly drop in May,
although the level of the index remained near a three-year high.

In addition, the volume of exports fell a seasonally adjusted 0.2%
month-on-month in May after rising 5.2% in April, as Japanese automobile
shipments dropped both in volume and value terms during the month,
reflecting the waning effects of tax credits for buying greener vehicles
in other countries. Japan’s auto exports are still increasing from
year-earlier levels.

“As for short-term prospects, although some severe aspects remain
in the employment situation, the economy is expected to be headed for a
self-sustaining recovery as corporate profits continue to improve,
reflecting improvement in overseas economies and the effects of policy
measures,” the Cabinet Office said, repeating its previous assessment.

Looking further ahead, the government urged a close watch on
downside risks including “a possible slowdown in overseas economies,
especially in the United States and Europe, fluctuations in the
financial and capital markets, and the influence of deflation.”

It added the U.S. economy as a downside risk in its assessment this
month following recent weak economic data.

tokyo@marketnews.com
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