Gov't upgrades economic assessment for 1st time in 8 months+

TOKYO, March 15 Kyodo -
The government upgraded on Monday its assessment of the state of the nation's
economy for the first time in eight months, as corporate earnings and personal
consumption improved on the back of a recovery in exports and the government's
stimulus measures.

But the government warned in a monthly economic report for March released by
the Cabinet Office that deflation still poses a risk, and repeated its call on
the Bank of Japan to work together to arrest the price declines a day before
the central bank begins a two-day policy meeting.
''Although the economy has been picking up steadily, it is only weakly
self-sustaining and remains in a difficult situation such as a high
unemployment rate,'' the Cabinet Office said in the report.
In February, the report described the state of the economy as ''picking up,''
without using the term ''steadily.''
The economic upgrading is the first by the state since Prime Minister Yukio
Hatoyama's government took power in September.
''There are budding signs of a sustained recovery in domestic private demand,''
Naoto Kan, the state minister for economic and fiscal policy, said in a press
conference. But he added it is premature to say that the economy is recovering
for sure as there are persistent downside risks, such as the effects of
deflation and possible deterioration in the employment situation.
''It is not that the economy is picking up with certainty. But it is
brightening,'' Kan, who also concurrently serves as finance minister, said.
He also expressed hope over the BOJ taking more actions to combat deflation and
said the BOJ should be ''fully aware'' that the government wants the central
bank's cooperation in ending deflation.
In the latest report, the government upgraded its assessment in five areas --
corporate profits, capital investment, housing starts, employment and private
consumption. The upgrading is the broadest since last July when the report also
made upward revisions to five economic components.
Personal consumption is ''picking up'' on the strength of the government's
stimulus efforts, including incentives for the purchase of environmentally
friendly cars and consumer electronics, the report said. It is the first
upgrading in eight months.
While exports and production continue to pick up, corporate profits are
''improving'' and business investment is ''starting to level off,'' the report
said.
While the corporate sector is seeing such improvements, the employment
situation recently is showing movements of an ''incipient recovery,'' the
report said, while adding the job market remains ''severe'' and could
''deteriorate'' again.
In January, Japan's seasonally adjusted unemployment rate fell to 4.9 percent,
slipping below 5 percent for the first time in 10 months.
Housing construction is also ''picking up,'' the report said.
As for short-term prospects for the nation's economy, the report said it is
expected to pick up as corporate profits improve on overseas demand and
stimulus measures.
But attention is necessary to the risks that the economy is depressed by the
influence of deflation, as well as by a possible slowdown in overseas
economies, it added.
The report revised its assessment on the nation's wholesale prices from ''being
flat'' in the previous month's report to ''being moderately rising'' reflecting
rising raw material prices overseas.
But given sluggish consumer demand in Japan, it is difficult for companies to
pass higher material on to products, Keisuke Tsumura, a parliamentary secretary
at the Cabinet Office, said.
''The end of deflation is still far off,'' he said.
The government repeated its call on the BOJ to implement ''appropriate and
flexible'' monetary policy to contain deflation, which the BOJ expects to last
at least for three years until the year to March 2012.
The BOJ's two-day monetary policy is scheduled to start Tuesday afternoon, with
market attention focused on whether the central bank will ease its ultra-loose
monetary policy further, and if so in what way.
==Kyodo
2010-03-15 22:54:15