MNI: Japan Govt Sees Modest Economic Recovery Despite Q1 Drop

     TOKYO (MNI) - Japan's government on Wednesday left its overall economic

assessment unchanged in May, saying for the fifth straight month that the

domestic economy is "recovering moderately" despite negative growth in the first

quarter.

     The government also maintained its views on key components of the economy:

private consumption and exports are "picking up" while business investment and

factory output are "increasing moderately."

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

continue "recovering," supported by an improvement in 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.

     The gross domestic product posted the first contraction in nine quarters in

Q1, down a real 0.2% on quarter, or an annualized 0.6%, as the severe winter

weather and high fresh food and fuel prices hurt consumption, official data

released last week showed.

     The Cabinet Office's Private Consumption Integrated Estimates Index, which

is based on both supply- and demand-side data, posted the first drop in two

quarters in January-March, down slightly (-0.0%) on quarter after rising 0.2% in

October-December and falling 0.7% in July-September.

     But Economic and Fiscal Policy Minister Toshimitsu Motegi noted in a

statement last week that the GDP marked the third straight annual expansion in

fiscal 2017 that ended in March, growing at 1.5% after +1.2% in fiscal 2016.

     In a bright spot in the GDP data, total compensation of employees

comprising gross salaries and benefits rose a real 0.7% on quarter in Q1 after

falling 0.2% in Q4. It continued to post year-on-year gains for three years, up

2.0% in real terms, and marked the highest increase in over two decades in

nominal terms, up 3.2%.

     "The economy will be also supported by solid global growth. Both the IMF

and OECD project a solid 3.9% expansion in 2018 and 2109," Hideyuki Ibaragi,

director of macro-economic analysis at the Cabinet Office, told reporters.

     On inflation, the government said that consumer prices "have risen

moderately in recent months," repeating its previous assessment. In March, it

revised up its view on inflation for the first time in nearly three years.

     The latest data showed Japan's core consumer price index (excluding fresh

food) rose 0.7% on year in April, with the pace of increase decelerating further

from +0.9% in March and +1.0% in February on lower utility costs, clouding the

prospect for the Bank of Japan's hitting its 2% inflation target in the next few

years.

     The underlying inflation rate measured by the core-core CPI (excluding

fresh food and energy) rose 0.4% on year in April, also slowing from +0.5% in

March, which was the largest gain since +0.5% in July 2016.

     "I think the slowdown is temporary," Ibaragi said. "In April, major mobile

carriers offered discounts on older models as they introduced new ones."

     The pace of core CPI increase has decelerated from the 1.0% rise in

February, when temporary factors pushed up inflation, he said.

     Chinese tourists rushed to Japan during the Lunar New Year holidays in

February, pushing up the prices for accommodations here, while strong Japanese

demand for traveling to South Korea for the PyeongChang Winter Olympics led to

higher prices for overseas tours.

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

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