MNI: Japan Govt Upgrades View on Modest Economic Recovery

     TOKYO (MNI) - The Japanese government on Friday revised up its overall

economic assessment for January, the first upward revision in seven months,

saying the domestic economy is "recovering moderately," backed by both the

corporate and household sectors.

     It was an upgrade from the previous statement that the economy was "in a

modest recovery phase."

     In addition to last month's upward revisions to its assessments of imports,

capital investment and industrial production, the government also revised up its

view on private consumption this month for the first time in seven months,

saying it is "picking up," instead of "picking up moderately."

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

is based on both supply- and demand-side data, posted the second straight

month-on-month rise in November, up a sharp 1.1%, after rising 0.2% in October

and falling 0.5% in September.

     The government also upgraded its view on employment conditions for the

first time in 25 months, saying they are "improving steadily." Previously it

said employment was "improving."

     --LABOUR SHORTAGES HURTING

     But at the same time, serious labor shortages are hurting some sectors.

     "Labor shortages are affecting small businesses but at this point, they are

not having an adverse impact on the overall economy. We must watch for any

deterioration in business sentiment," Hideyuki Ibaragi, director of

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

     The government maintained its assessment on consumer prices as being

"flat." It has been using the expression for the last 18 months.

     The core CPI (excluding volatile fresh food prices) rose 0.9% on year in

November, still far below the Bank of Japan's 2% inflation target.

     The recent slow pickup in the CPI has been led by year-on-year gains in

energy costs and supported by price markups by some restaurant chains, home

delivery firms and food processors.

     --PRICES TIDE TURNING

     "On the other hand, the recent price increase was also due to upward

revisions to medical charges and alcohol tax rates, so the trend is not so

strong," Ibaragi said.

     "We have not changed our assessment (on consumer prices) but the tide is

changing."

     Compared to goods prices, service prices, which account for about half of

the CPI basket, have been depressed.

     "But if wage hikes are decided through spring labor-management talks (for

large firms), personnel costs will rise, which then may lead to higher service

prices," Ibaragi said.

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

continue "recovering moderately," backed 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.

     Last month, the Bank of Japan maintained its overall assessment that the

economy was expected to stay on a modest recovery trend, led by a pickup in

exports, factory output and business investment.

     The BOJ slightly upgraded its view on consumer spending, which it now sees

as "increasing moderately, albeit with fluctuations" instead of "increasing its

resilience."

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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