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Economic assessment raised as weak yen fuels exports

Kyodo

The government on Monday upgraded the economy for the first time in two months by deleting the word “weak” from its description to reflect the effect the “Abenomics”-weakened yen is having on exports and production.

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

In April, the government said the economy “is showing movements of picking up recently, while weakness can be seen in some areas,” maintaining its basic economic assessment after raising it for three months.

“We decided to upgrade the economic assessment” because the economy is “on a V-shaped recovery path,” economic and fiscal policy minister Akira Amari said at a news conference after the report was release.

“But capital spending has remained negative,” Amari said, adding, “It is important to create an environment where business investment rapidly turns positive” to shore up the broader economy further.

As for prices, the report said the trend “indicates that the Japanese economy is in a mild deflationary phase,” repeating the same phrase used in April, but added: “while signs of change can be seen in some areas recently.”

A government survey earlier this month said 82.8 percent of households predict prices to 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 its deflationary slump has bolstered inflation expectations.

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

The Cabinet Office also upgraded its opinion on exports for the second month in a row, saying they “show signs of picking up.”

Exports, traditionally Japan’s main growth engine, are rebounding as the global economy gradually begins to recover and the slump in shipments to China bottoms out, a Cabinet Office official said.

Shipments to China have languished for months over the the Senkaku dispute.

The government also said that 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 the January-March quarter to log their first gain in four, according to gross domestic product data released Thursday by the Cabinet Office.

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

The outlook for Japan’s economy has become rosier as optimism sprouts from the Abe team’s slick deflation-busting campaign, dubbed “Abenomics.”

The program is based on a drastic monetary easing experiment, the Liberal Democratic Party’s traditional fiscal spending binges, and promises of structural reform that never seem to materialize.

Japan’s economy grew at an annualized rate of 3.5 percent in the first three months of 2013 in inflation-adjusted terms, the second consecutive quarter of expansion. But business investment fell 0.7 percent in the quarter for the fifth quarterly decline.

Japan’s core consumer price index fell for the fifth straight month as well, dropping 0.5 percent in March on year.

Amari, however, said he expects prices to begin rising as the yen’s slide pushes up the cost of imports, such as energy, and the effects of the BOJ’s risky quantitative easing steps emerge.

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

Critics say its strategy poses a risk if long-term bond yields rise.