Gov't upgrades basic economic assessment as weaker yen lifts exports

The Japanese government on Monday revised upward its basic assessment of the economy in May, as a weaker yen has helped exports bounce back, encouraging companies to boost production.

The economy "is picking up slowly," the Cabinet Office said in its monthly economic report, in which it upgraded three of the 14 categories -- exports, industrial output and corporate earnings.

Last month the government noted the economy "is showing movements of picking up recently, while weakness can be seen in some areas." Yet it maintained its basic economic assessment in April, after raising it the three previous months.

As for prices, the Cabinet Office said the trend "indicates that the Japanese economy is in a mild deflationary phase," the same expression as in April, but it added a new phrase "while signs of change can be seen in some areas recently."

A government survey showed earlier this month that 82.8 percent of households predict consumer prices in Japan will rise in the year ahead, suggesting the pledge by Prime Minister Shinzo Abe's administration and the Bank of Japan to pull the economy out of deflationary recession has bolstered inflation expectations.

The latest economic report came as data showed that exports grew in the first quarter of this year and industrial production rose for the fourth consecutive month in March.

For May, the Cabinet Office upgraded its assessment of exports for the second month in a row, saying they "show signs of picking up."

Japan's exports, a key engine of growth, have started to rebound as the global economy has returned to a gradual recovery path and shipments to China have bottomed out, a Cabinet Office official said. Shipments to China have languished for months due to a bilateral territorial row over a group of uninhabited islands in the East China Sea.

The government also said output is "picking up slowly," and corporate earnings "show movements of improvement, mainly among large firms." Both categories were revised upward for the first time in two months.

Exports expanded 3.8 percent in January-March, the first gain in four quarters, according to gross domestic product data released Thursday by the Cabinet Office.

The Economy, Trade and Industry Ministry said on the same day that industrial output in March grew a seasonally adjusted 0.9 percent from the previous month, up for the fourth straight month.

The outlook for Japan's economy has become more upbeat with hopes growing for Abe's economic policies aimed at beating chronic deflation, dubbed "Abenomics," which centers on drastic monetary easing and massive fiscal spending.

Japan's economy grew at an annualized rate of 3.5 percent during the first three months of 2013 in inflation-adjusted terms, the second consecutive quarter of expansion.

The country's core consumer price index fell for the fifth straight month, down 0.5 percent in March on year, but many analysts expect prices will begin rising later this year as the yen's slide pushes up import costs and the effects of the BOJ's easing steps emerge.

The central bank decided last month on a set of new policy measures to pursue stronger monetary easing to achieve its 2 percent inflation target within two years.