Japan upgrades economic assessment on recovering exports, production

TOKYO (Kyodo) - The government on Monday revised upward its assessment of the Japanese economy in February, upgrading its evaluation for the second consecutive month, citing recovering exports and production while warning of slowing consumption and rising commodity prices.
The economy is ''showing movements towards a pickup and emerging from a recent pause in activity,'' the Cabinet Office said in its report. Last month, it said that ''economic movements appear to be pausing.''
Economic and fiscal policy minister Kaoru Yosano told a press conference after the release of the report that he believed the economy ''would gradually return to a recovery track unless risk factors emerge,'' including a further deterioration in employment conditions.
The office upgraded its assessments of exports and production for the first time in 16 months and the second straight month, respectively, while downgrading its evaluation of consumer spending for the first time in three months.
''Exports and industrial production are showing movements of picking up,'' the report said, with a government official underlining robust demand from China and other Asian economies for cars, machinery and electronic parts used in smartphones.
Industrial output grew in November and December after dropping for five straight months especially due to slowing production in the information technology sectors in Taiwan and South Korea, which import Japanese parts. The government forecast that Japan's production index would rise further in January before sliding the following month.
On short-term prospects, the report said the Japanese economy would pick up ''reflecting improvement in overseas economies and the effects of various policy measures.'' But the Cabinet Office also called for attention to some downside risks to its baseline scenario.
The office lowered its assessment of private consumption this month, saying it was ''almost flat recently,'' a widely expected move that came amid the diminishing effects of the government's fiscal stimulus measures to boost domestic sales of environmentally friendly vehicles and appliances.
The government also cited subdued increases in winter bonuses paid by companies to employees as a reason for the downgrade.
Rising oil and other commodity prices could also weigh on the outlook.
Although it left unchanged its judgment on price developments -- saying they suggest mild deflation -- the office warned that the rising import prices of food and energy could lead to a deterioration in consumer sentiment if companies pass on the increases to retail prices. If firms do not pass on the rising costs, then the upward price pressures will directly hit their earnings, it said.
Yosano raised concerns about the pro-democracy protests in the Middle East and Africa, stressing that Tokyo is watching crude oil price volatility.
The report left unchanged assessments of most other components. Employment conditions remain ''severe,'' corporate capital spending ''is picking up'' against the backdrop of improving profits, and companies' evaluation of the current business environment ''shows a sign of caution.''
As for overseas economies, the office raised its evaluations of the global economy as a whole, as well as of the United States and China.
While mentioning the favorable impact from recovering U.S. consumption and robust domestic demand in China, the report highlighted the need for caution regarding high unemployment in the United States, inflationary pressures in China and other emerging economies, and the sovereign debt crisis in Europe.