(Reuters) – Japan raised its assessment on the overall economyfor the first time in four months, reflecting strong private consumption and improving capital expenditure, suggesting Tokyo’s aggressive stimulus is solidifying an economic recovery.
The government on Friday also raised its view on consumer spending for a second straight month, saying it is “increasing” as sentiment remains upbeat and as demand rises ahead of a sales tax hike in April.
In addition, with company profits and business conditions recovering, the government upgraded its assessment on capital spending for the first time in four months, saying it is picking up.
The economy is recovering at a moderate pace, the government said in its January report released on Friday, using slightly stronger wording than the previous month when it said the economy was on track towards a moderate recovery.
The upbeat view comes as Japan’s economy benefits from the government’s massive fiscal and monetary stimulus steps aimed at ending 15 years of deflation and sparking sustainable growth.
The world’s third-largest economy sped past its G7 counterparts in the first half of last year as the stimulus measures took effect.
Bank of Japan Governor Haruhiko Kuroda, who has overseen an unprecedented bond-buying campaign since April last year, on Thursday maintained his upbeat view on the economy, saying it will continue a moderate recovery despite the likely damage from April’s sales tax hike.
The BOJ is hoping its efforts will stir up 2 percent inflation in less than two years. The halfway mark towards its inflation goal was reached in November as prices rose the most in five years, while regular wages halted 17 months of declines.
“Overall, the economic recovery is on firmer ground,” said a Cabinet Office official in charge of compiling the report.
Data on Thursday showed Japan’s core machinery orders jumped to a five-year high in November, a sign that companies may be ready to ramp up investment.
SALES TAX HIKE
Economics Minister Akira Amari said on Friday that private capital spending is expected to expand given improvement in corporate sentiment and earnings.
“Other indicators are also looking up, so we can expect that capital spending will expand considerably,” Amari told reporters.
He added that firm private consumption reflects the view that households are feeling the strength of economic recovery, in addition to the effect of consumers’ rushing to buy ahead of the sales tax increase in April.
The economy is expected to remain on a recovery trend as household incomes and business spending rise, and as exports are moving towards improvement, the monthly report said.
However, a Cabinet Office survey released later on Friday showed that Japanese consumer confidence worsened in December, a possible sign of wariness towards the sales tax increase.
The survey’s sentiment index for general households, which includes views on incomes and jobs over the next six months, fell to 41.3 from 42.5 in November. The result prompted the Cabinet Office to cut its assessment on consumer sentiment, saying it is stalling.
Of the survey’s four constituent indexes, those regarding incomes, livelihoods and purchases of durable goods declined, suggesting private consumption may lose momentum after April.
The survey also showed nearly 90 percent of households expect that prices will rise in a year, suggesting inflation expectations are holding.
Last month, the government dropped the word “deflation” in describing the economy for the first time in four years as consumer prices showed signs of rising – a milestone in its battle against a decade and a half of falling prices.
The government maintained its view on prices, saying they are holding firm.
(Additional reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam and Chris Gallagher)
