The economy will probably keep expanding in 2008, though higher oil prices and a slowdown in the United States are risks to growth, economic and fiscal policy minister Hiroko Ota said Monday.
"Japan's recovery will probably continue next year," Ota said, though she added that the U.S. housing recession could stunt consumer spending in Japan's largest export market.
Many Japanese companies are unable to pass on higher costs of energy and raw materials to clients, crimping profits and preventing them from raising wages, Ota said.
She said Japan should recover from a slump in housing investment triggered by a legal change that made it more difficult to obtain building permits. "The implementation of the housing rule change was a case of bad preparation, but it doesn't represent a trend," Ota said.
She also commented on fiscal policy, saying Prime Minister Yasuo Fukuda aims to cut spending and is committed to eliminating the deficit by March 2012. Still, she added, taxes will need to be raised "sooner or later" to fund swelling welfare costs.