“The economy has been picking up steadily,” though it remains in a “difficult situation” because of high unemployment, the Cabinet Office said today in its report for March. The rebound is still weak, it said.

Reports in the past month have shown that the nation’s export-led recovery is starting to benefit consumers, with wages rising for the first time in 20 months in January and households increasing spending for a sixth month. The upgrade comes on the eve of the Bank of Japan’s board meeting, where it may expand credit measures amid deflation.

The upgrade reflects “the view that there are budding signs for a recovery in domestic private demand,” said Keisuke Tsumura, a parliamentary secretary at the Cabinet Office.

The government had said in February that the recovery was “short of autonomous factors.”

The Cabinet Office raised its evaluation of corporate profits, business investment, consumer spending, housing construction and employment. The upgrade of five components is the most since July 2009.

Earnings are “improving” and capital spending “is starting to level off,” the report said. Housing construction and private consumption are “picking up,” it said.

Profits Rebound

Profits surged 102.2 percent in the three months ended Dec. 31 from a year earlier, the first increase in 10 quarters, a Finance Ministry report showed this month. Capital spending fell 18.5 percent, the smallest decline in a year.

The unemployment rate dropped to a 10-month low of 4.9 percent in January. Though the labor market remains severe, evidence of a “incipient recovery can be seen recently,” the government said.

Improvements in the job market helped consumer confidence climb to a four-month high in February, a separate Cabinet Office report showed today.

Japan remains in a “mild deflationary phase,” according to the economic evaluation. Finance Minister Naoto Kan is among Cabinet officials who are pressing the central bank to do more to spur consumer prices that have tumbled for 11 months.

Vice Finance Minister Yoshihiko Noda said at a news conference today that he wants the central bank to maintain “its appropriate and flexible policies.”

Gross domestic product rose at an annual 3.8 percent pace in the fourth quarter, slower than the 4.6 percent reported in preliminary figures last month, the Cabinet Office said on March 11. The GDP deflator, a gauge of price trends, fell a record 2.8 percent.

 

Source - http://www.businessweek.com/