Japan Govt: Modest Econ Pickup Intact, Some Service Prices Up

     TOKYO (MNI) - The Japanese government on Tuesday left its economic

assessment for November unchanged for the fifth straight month, repeating that

the domestic economy remains "in a moderate recovery," while noting the positive

output gap and a pickup in some service costs point to a move out of deflation.

     The government also left unchanged its assessment of consumption, capital

investment, exports and industrial production.

     In June, the government revised up its overall economic assessment for the

first time in six months.

     Looking ahead, the government maintained its outlook that the economy will

continue "recovering moderately," backed by improvement of labor and income

conditions and the effects of fiscal spending.

     It also repeated the risks to its outlook, citing uncertainty in overseas

economies and the effects of fluctuations in financial and capital markets.

     "There is a change in the phase toward moving out of deflation," the

government said.

     The output gap has turned positive, +0.5 percentage point in the

July-September quarter, indicating firmer demand against supply. Corporate

profits have been hitting record highs since fiscal 2013 and labor supply is the

tightest in 25 years.

     Japanese consumer price gains have been slow, reflecting slow wage hikes,

but labor shortages and stronger demand are leading to rises in some service

prices for theme park admission, hotels, restaurants and deliveries, the

government said.

     The government repeated that private consumption is "picking up moderately"

and that business investment is "picking up."

     Data released on Nov. 15 showed Japan's economy for the July-September

quarter posted a modest 0.3% rise on quarter, or an annualized 1.4%, as a

rebound in net exports offset a slump in consumer spending caused by bad

weather.

     "The decline in private consumption is temporary caused by the long stretch

of rainy days and a series of typhoons," said Hideyuki Ibaragi, director of

macro-economic analysis at the Cabinet Office.

     The government also left unchanged its assessment of exports and industrial

production, the key drivers for current modest economic growth, saying they are

both "pickup up."

     New vehicle sales dropped in October, partly due to the suspension of

production and shipments by Nissan in the wake of its below-standard vehicle

inspection scandal. The lingering effects of the introduction of new models has

now faded.

     The impact of the Nissan scandal appears to be limited as it does not

affect exports. About 60% of Nissan's domestic production is for exports and

production is returning to normal, Ibaragi said.

     But he added that the government will watch for the longer-term effect of

the latest quality control scandals involving major Japanese manufacturers.

     Kobe Steel has disclosed that some of its inspectors faked data for a wide

range of its products from iron and steel to copper and aluminum and machinery.

It has withdrawn its net income forecast and will stop paying dividends.

     In a separate scandal, Nissan Motor recalled about 1.2 million cars in

Japan that did not meet domestic rules on final safety inspections. Tests were

performed by staff who were not certified to check whether the vehicles met

government standards. Subaru also said it had allowed uncertified staff to

perform final quality checks of finished vehicles.

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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