The government on Monday upgraded its assessment of the economy for the first time in four months, encouraged by recoveries in industrial production and exports, which sank after the March earthquake and tsunami.
"Upward movements are being observed in the Japanese economy," the Cabinet Office said in its June report, pointing to progress in supply chain restoration and ebbing fears about consumption.
While acknowledging that "difficulties continue to prevail" in light of the catastrophe, "the economy is expected to resume picking up because progress is being made in restoring the supply chains," the report said.
The office also upgraded its assessment of private consumption for the first time in 15 months, saying it "began leveling off" despite the underlying weak trend.
In its May report, the government simply repeated its previous assessment that the economy has been "showing weakness recently."
While the government expects the encouraging developments to spill over into the broader economy, the report also suggests that the recovery is still patchy and that concerns abound.
Assessing the other components of the economy, the office said, "Corporate profits have decelerated and business investment has weakened" while the employment situation "remains severe."
The report also struck a cautious tone about the overseas economies that were propping up Japan's export-dependent recovery before the disasters.
Along with the constraints on power supply, the consequences of the nuclear emergency at the Fukushima No. 1 power plant and high oil prices, along with "the further slowing down of overseas economies," could heap pressure on the economy, the office said, downgrading its assessment of economic conditions abroad for the first time in 28 months.
The report signaled Japan's intent to "overcome the restrictions" caused by the disaster "in a sequential and steady manner, as well as restoring the growth potential of the Japanese economy."