The Japanese government on Monday upgraded its assessment of the economy for the second straight month in February as a rebound in exports boosts production.
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Japanese Prime Minister Naoto Kan (R) and Finance Minister Yoshihiko Noda attend a budget committee meeting in the lower house of parliament in Tokyo February 21, 2011
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"The Japanese economy is moving toward a pickup as it emerges from its recent pause," the Cabinet Office said Monday in its monthly economic report.
The new assessment follows the previous governmental view on Japan's economy that stated: "Economic movements appear to be pausing".
However, while the government signaled that Japan is emerging from its economic lull, the Cabinet Office noted that downside risks such as rising commodity prices and sluggish consumption still remained and thus the Japanese economy is yet to be on a self-sustained recovery path. The Cabinet Office raised its view on exports for the first time in 16 months, and lifted its assessment of industrial production for the second straight month.
Industrial output in Japan increased 3.3 percent in December from the previous month and was forecast to gain 5.7 percent in January, suggesting Japan is on a positive recovery track, despite Japan's gross domestic product falling an annualized 1.1 percent in the October-December quarter.
Most economists predict however that in the current quarter due to increased exports, which are inextricably linked to production, the economy will see a rebound.
In light of this however, the office did cut its view on private consumption for the first time in three months, saying that private consumption is "nearly flat," in contrast to the previous month's assessment stating: "consumption was picking up despite some areas of weakness."
Other potential risks to the economy the Cabinet Office highlighted in its report were the ever-increasing posibility that demand from major export markets may decline, the Japanese currency may undergo another prolonged period of robustness against its major counterparts, which will hamper the nation's export-led recovery, and a rise in oil and other commodity prices may also take its toll.
The Cabinet Office raised its view of the overall health of the global economy, with specific reference to the U.S. and China, although pointed out that the U.S. still faces unemployment hurdles and China inflationary pressure.
Regarding the single-currency euro zone, the government said that it remained cautious regarding sovereign-debt problems in the region.
The Cabinet Office said it expects the economy to continue picking up, boosted by a recovery in exports and supported by the ongoing razor-thin interest rates upheld by Japan's central bank./.