REPEAT:MNI: Japan Govt Sees Modest Recovery Despite Soft Spots

By Max Sato

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

assessment unchanged in June, saying for the sixth straight month that the

domestic economy is "recovering moderately" while noting soft spots in consumer

confidence and Eurozone growth.

     The government 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."

     However, it also added that "the pickup in consumer confidence is marking

time."

     While the government maintained its assessment that the Eurozone economy is

recovering moderately, it downgraded its view on production and exports in the

region, saying their pickup "is taking a breather."

     Asked whether the government considered downgrading its overall view on the

strength of Eurozone growth, Atsushi Ogawa, director of research on overseas

economies at the Cabinet Office told reporters, "In Germany, there is a

constraint in supply, not in demand. We want to see how things evolve."

     He noted that the Eurozone GDP slowdown in the January-March quarter was

due partly to temporary factors, such as the cold weather, worker strikes and an

outbreak of the flu.

     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.

There was no specific mention of the impact of U.S. trade disputes.

     --MIXED CONSUMPTION DATA

     On the domestic front, private consumption is picking up but there is a

mixed bag of indicators, said Hideyuki Ibaragi, director of macro-economic

analysis at the Cabinet Office.

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

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

months in April, up 1.0% on month after falling 0.4% in March and rising 0.4% in

February.

     "After weak consumption in the January-March quarter, the weather was

milder in April, when there was firm demand for automobiles and spring and early

summer clothing as well as leisure and travelling," he said.

     The total employee income -- the sum of average cash earnings per employee

multiplied by the number of workers -- rose a real 3.2% on year in April.

     However, average cash earnings per regular employee rose just 0.8% on year

in April. In real terms, average wages showed no growth from a year before. The

recent weak trend was caused by the rising cost of living.

     --WEAK CONSUMER CONFIDENCE

     "The pickup in consumer confidence is marking time, particularly among the

households whose members are aged 60 years or older," Ibaragi said. "The recent

rise in gasoline prices and electricity costs is affecting sentiment."

     He also pointed out that the share of households with people aged 65 or

older rose to 35.3% in 2015, up from 19.7% in 1995.

     --MODEST EXPORTS, OUTPUT

     Japan's exports are not so strong, either. The three-month moving average

of export volumes rose just 0.3% in May from the previous three-month period.

     Export volumes of Japanese information goods (liquid crystal devices,

chip-making equipment, integrated circuits, etc.) to Asia have lost some steam

in recent months, up 16.6% in April from the level seen at the end of 2016,

after a recent peak of +20.3% in December last year.

     The increase in industrial production is also "moderate" on slower demand

for electronic parts and devices used in smartphones.

     However, semiconductor shipments to the world are expected to keep growing

in coming years, thanks to solid demand for Japanese chips used in data servers

and automobiles, Ibaragi said.

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