REPEAT: MNI:JAPAN GOVT SOURCE: Optimistic Solid Growth To Stay

Repeats Story Initially Transmitted at 07:13 GMT Oct 31/03:13 EST Oct 31

By Max Sato

     TOKYO (MNI) - The Japanese government remains optimistic that the recent

Goldilocks economic recovery -- not too fast, not too slow -- will continue,

backed by overseas demand and modest income gains.

     Economists have forecast modest growth in gross domestic product in the

July-September quarter, slowing from the unusually strong expansion in the

previous three months due to a slump in consumption.

     "The economy is expanding moderately and I don't think there is any change

to the basic trend," a senior official at the Cabinet Office, who declined to be

identified, told Market News International.

     "We must not read too much into weather factors, such as a long stretch of

rainy days in July and August, which hurt tourism but supported spending in

nearby shopping areas. There are both positive and negative sides to the

weather," the official said. 

     Cooler weather dampened demand for summer goods but raised sales of autumn

clothing, he said.

     "Backed by improving employment and income conditions, consumption is

unlikely to suffer a sharp drop for now," the official said.

     He declined to provide a forecast for Q3 GDP data due to be released on

Nov. 15 but said the economy has been expanding above its growth potential,

estimated at around 1%. "I hope to see it continue," he said.

     Earlier this month the government left its economic assessment for

September unchanged for the fourth straight month, repeating that the domestic

economy remains "in a moderate recovery," while noting that imports are showing

temporary weakness.

     The government also left unchanged its assessment of consumption, capital

investment, exports and industrial production. It repeated that private

consumption is "picking up moderately."

     To some economists, the government seems to be counting too much on global

demand for Japanese-made chip-making equipment and general machinery, but the

Cabinet Office official said that "the gradual recovery in the world economy is

expected to continue."

     "It is not just demand for electronic parts and devices, but there is

strong demand for capital goods from the U.S., where the economy is picking up,"

he said.

     On the domestic front, some corporate scandals are tarnishing the image of

high-quality control in the Japanese manufacturing sector.

     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 is recalling 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.

     "We must keep a close eye on sales and other figures but at this point the

news has not shaken the economy," the senior government official argued.

     Asked about the slow progress in the Bank of Japan's efforts to guide

inflation to a stable 2%, the official noted that higher consumer prices that

cut take-home pay would not be good for households, and thus private

consumption, which accounts for about 60% of total domestic output.

     "It is better to see prices rise along with a faster increase in wages,"

the official said. "I don't think the BOJ is trying to achieve 2% inflation

whatever it takes. I believe they are seeking balanced macroeconomic

improvement."

--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

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com