The economy is showing increasing signs of bottoming out, the government said Wednesday, upgrading its assessment for the second straight month.

“While the economy continues to be in a difficult situation, it is showing movement toward bottoming out,” the Cabinet Office said in the official government economic assessment for April.

In March, the government upgraded its assessment for the first time in 21 months, saying, “Signs of bottoming out can be seen in some areas.”

Jun Saito, director for economic assessment and policy analysis at the Cabinet Office, said the signs of bottoming out cited in the March report later expanded.

“The March report referred to improvements in only a limited number of economic indicators,” he said, “but the April report said signs of bottoming out were observed in the overall economy.”

In the April report, the Cabinet Office upgraded its assessment of four individual areas — exports, industrial output, business sentiment of companies and employment situations.

“Exports and industrial production are almost bottoming out,” the report says. “Business sentiment at large enterprises is showing signs of bottoming out.”

According to the Bank of Japan’s latest “tankan” survey of business confidence, sentiment among major manufacturers stopped deteriorating in the first quarter of this year after declining the previous four quarters.

The employment situation was slightly upgraded and is now described as “continues to be severe,” compared with the previous month’s wording of “becoming increasingly severe.”

This reflects a jobless rate unchanged at 5.3 percent from February to January, when the rate fell 0.2 percentage point from the record-high 5.5 percent in December.

The Cabinet Office report also cites a spillover effect from the U.S. rebound.

“Movements toward recovery in the U.S. economy are feeding into the recovery in production, mainly in the manufacturing sector, of the world’s major economies,” it says.

However, the report also says the situation for some elements of Japan’s economy, including business investment and private consumption, remain severe.

“As for short-term prospects, there are concerns over the downward pressure on private demand that may be exerted by such factors as severe employment and wage situations,” the report says. “On the other hand, improvement in external conditions and progress in inventory adjustment are expected to prevent the economy from deteriorating further.”

While some economists in the private sector say the economy hit bottom in the October-December quarter, the government is taking a more cautious approach in its assessment because of the belief that downward risks continue to exist, Saito said.

In judging whether the economy has bottomed out, the government will be “especially careful in seeing if industrial production has bottomed out and if it has led to improvements in the employment and wage situations,” he said.

Deflation steps

Prime Minister Junichiro Koizumi pledged Wednesday to consider additional steps to fend off deflation while monitoring the effects of the fiscal 2002 budget and other policy measures now being carried out.

“The fiscal 2002 budget has cleared the Diet and is being implemented smoothly, while bad-loan disposals and deregulation are progressing. In addition, debate on taxation system reform is about to start,” Koizumi said. “I would like to determine what measures will be necessary while monitoring those steps (already being taken).”

The government’s Council on Economic and Fiscal Policy, the top policymaking panel, led by Koizumi, will assemble next week to discuss what should be done to pull the economy from its current state of deflation, government officials said.

On March 27, the Diet passed an austere 81.2 trillion yen general-account budget for fiscal 2002, which is 1.7 percent smaller than the initial budget for fiscal 2001 through March 31.

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