The Japanese government said consumption is picking up in its April economic report, the first upgrade in its assessment on spending in 20 months, but it lowered its view on production. Its overall assessment of the economy was unchanged.
"The economy is recovering, despite weakness in industrial production in some sectors," the government said in the report on Monday. Last month, it said the economy was recovering despite some weakness in consumption.
Japan's economics minister Hiroko Ota told a news conference held after the report's release that warmer weather had had a positive effect since February on sales of spring items. "But wages are not growing, so I'm not sure if the recovery in consumption will continue strongly," she added.
The mention of weakness in some areas of production marked the first cut in the government's view on output in 28 months. "Production in general machinery and transportation equipment, namely automobiles, is going through a soft patch mainly in reaction to very strong growth in October-December," a senior official at the Cabinet office said.
But consumption, which accounts for about 55 percent of the economy and has been seen as the weakest link in the current economic recovery, appears to be showing signs of improvement. The government's composite index for personal consumption released on Thursday showed that the average growth for January and February was at 1.1 percent, higher than the average 0.9 percent increase in October-December.
The Cabinet Office official said, however, that it was still unclear whether the pace of rise in consumption would gain momentum in the future, citing slack wage growth. With regard to output, he noted declining production in the electronic devices sector, where inventories were rising.
Industrial production, the main basis for the government's assessment on production, rose 0.7 percent in February from a month earlier on a seasonally adjusted basis, revised government data showed on Monday.
Taken together with a 2.3 percent fall in January, the reading in the output data for first quarter of 2007 will likely fall 0.6 percent from the previous quarter if output rises by 1.8 percent in March as forecast, a government official said.
If it actually declines, it would be the first fall in six quarters. The government report said business sentiment was flat, revising down its view from the previous month, when it said sentiment was improving moderately.
The Bank of Japan's quarterly tankan survey of business sentiment out earlier this month showed that the mood among big manufacturers worsened slightly, slipping for the first time in a year, although it stayed near the two-year high hit in the previous survey. The government maintained its assessment that exports and imports were flat in its monthly report.
The world's second-largest economy expanded by an annualised 5.5 percent in October-December, marking the fastest growth in three years. While the economy may go through a soft patch in the coming months, economists expect it to grow around 2 percent in 2007. The government will release preliminary gross domestic product figures for the January-March quarter on May 16.