The government Tuesday raised its assessment of the economy for the first time in five months in the wake of a recent stock rally and new signals from the United States.
“The economy remains roughly flat. The economic environment, including stock prices and the U.S. economy, is showing signs of change,” the Cabinet Office said in its monthly economic report.
The phrase is upgraded from the previous report in July, which said the economy was largely flat, but partially showing weak signs.
The monthly report comes after the benchmark Nikkei-225 stock average briefly jumped above the psychological barrier of 10,000 in early July, rising more than 30 percent from a low in April. The surge helped ease the country’s pessimistic sentiment. The stock average has hovered around 9,500 since then.
The report also follows news late last month that real U.S. gross domestic product increased at an annual rate of 2.4 percent in the second quarter, compared with 1.4 percent in the first quarter. Signs of a U.S. economic recovery are good news for Japanese exports, currently the major driving force of the economy.
“Our mood can still be affected by news about stock prices, but it is true that the overall economic trend is getting better,” Finance Minister Masajuro Shiokawa said. “We should now focus most on how to write off banks’ bad loans and glean the reality of the unemployment situation.”
Future improvement of the economy, however, largely depends on the direction of the U.S. economy, the Cabinet Office said in the report. If the recovery is sustained, it said, Japan’s economy can be expected to subsequently pick up.
The report also says the government needs to carefully monitor the domestic stock market and long-term interest rates, as any sharp rise in interest rates may place a heavier burden on corporate activities amid the still fragile economy.
The August report says exports have slowed recently, but largely attributes this to a temporary factor — the impact of severe acute respiratory syndrome in Asia, particularly China, an increasingly important trade partner of Japan.
The country’s manufacturing output is flattening out after sluggish production since the start of the year, while a mild recovery in corporate earnings is leading to a gradual increase in capital spending, the report says.
Employment is showing some signs of a pick-up, although the situation is still severe. The unemployment rate, which marked 5.4 percent for three consecutive months, edged down to 5.3 percent in June.