Gov't upgrades economic assessment, drops 'deterioration' in report

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TOKYO, June 17 Kyodo -
The government on Wednesday upgraded its assessment of the Japanese economy for
the second month in a row, taking the view that the economy is likely to have
bottomed out already.
''While the economy is in a difficult situation, movements toward picking up
are seen in some areas,'' the Cabinet Office said in its monthly report for
June, in the latest indication that the worst of the recession may be over.
The office deleted the phrase meaning deterioration from its report for the
first time in seven months, citing signs of recovery in exports and industrial
production.
''It is strongly estimated that (the economy) hit bottom during the
January-March period,'' Economic and Fiscal Policy Minister Kaoru Yosano said
at a news conference.
Some observers see Yosano's effective declaration of the bottoming out of the
recession as a means for the ruling parties to seek better support ratings
ahead of the general election which must be held by the fall.
But Yosano, who is also finance minister, added, ''We cannot be so
optimistic,'' stressing the need to monitor carefully the deteriorating
employment situation. The Japanese economy still bears ''downside risks,'' he
said.
In the public economic assessment report, the government had used the
expression indicating a downturn to describe the state of the economy since
last December.
In May, it said, ''While the economy is in a difficult situation, the pace of
deterioration has become moderate,'' raising its overall economic assessment
for the first time since February 2006. In the previous three months, it said
the ''economy is worsening rapidly while in a severe situation.''
The latest upgrading of the government's economic assessment came on the heels
of the Bank of Japan's lifting of its economic views on Tuesday.
In its June report, the Cabinet Office said the prospects for the economy amid
the harsh employment situation are ''likely to remain severe for the time
being.''
But it said the economy is likely to pick up due to improvements in economic
conditions overseas including in China, further reduction of pressure on
inventories and the effects of the government's economic stimulus measures such
as tax cuts for the purchase of eco-friendly cars.
Exports were showing signs of improvement, especially to Asian countries
including China, the office said, adding Beijing's economic stimulus measures
as well as progress in global inventory adjustments are likely to encourage a
further upturn in Japanese exports.
The office gave an upbeat assessment of industrial production, marking a rise
for the second consecutive month. Earlier in June, the government said Japan's
industrial output in April grew a seasonally adjusted 5.9 percent from the
previous month.
It also changed its evaluation of consumer spending, a key driver of domestic
demand, from the previous month's ''decreasing modestly'' to the description
that ''personal consumption is weak but there are some signs that it will cease
to fall.''
The move comes on the back of improving consumer sentiment due to the effects
of government stimulus measures, such as the ''eco-point'' system launched in
mid-May to spur individual spending by offering points for the purchase of
government-designated environmentally friendly home electronic products that
can be exchanged for certain goods and services.
But the office still warned about the outlook for consumer spending, noting
that worsening employment, the situation regarding workers' decreasing income
and summer bonuses, and the impact of the new influenza must be carefully
watched.
Japan's April unemployment rate rose to 5.0 percent, its highest level since
2003, according to the Internal Affairs and Communications Ministry.
To be able to say that the economy has recovered, an assessment needs to be
made as to whether the pickup in some areas such as industrial output will be
''sustained'' in the succeeding months, a Cabinet Office official said.
For other economic areas, the office downgraded its assessment on capital
spending and housing construction both to ''sharply falling.''
Recent government statistics have shown that capital spending in the
January-March quarter fell 25.3 percent from a year before on an all-industry
basis, while Japan's housing starts in April fell 32.4 percent from a year
earlier, posting a record low in the number of starts for the month of April.
Looking to the global economy, the office kept its overall assessment as being
still in a severe situation and facing possible downside risks despite some
positive results stemming from various policy responses.
Asia provided a bright sign as not only China but some other areas in the
region -- South Korea, Taiwan and Thailand -- were showing signs of a pickup in
production, the report said.
==Kyodo