REPEAT: MNI: Japan Offl: Modest Recovery On Despite Weak GDP

By Max Sato

     TOKYO (MNI) - Japan's lukewarm growth took a breather in the first three

months of the year, hit by the severe winter weather and higher cost of living,

but the government's view remains that the economy is on a modest recovery

track, a senior official at the Cabinet Office said Wednesday.

     But he also acknowledged that government policymakers must keep a close

watch on the impact of rising prices of energy and other daily necessities.

     --NO VIEW CHANGE

     "There is no change to the modest economic recovery trend. The economy is

unlikely to decline sharply. You don't have to worry too much about the weak GDP

figures," the official told reporters.

     "The income and employment conditions are fine and solid overseas demand

hasn't changed. There is no change to the overall assessment of the economy."

     The real gross domestic product (GDP) posted the first contraction in nine

quarters in Q1, down 0.2% on quarter, or an annualized 0.6%, data from the

Cabinet Office released Wednesday showed.

     Private consumption, which accounts for about 60% of GDP, was flat with a

slight negative bias (-0.0%) on quarter in Q1 after a 0.2% rise (revised down

from the previous estimate of +0.5%) in Q4, but the official said it was a

temporary setback.

     --TEMPORARY DIP

     "Overall, it was in payback for strong growth in the fourth quarter (of

2017). The bad weather and higher prices of daily necessities dampened

sentiment," the official said.

     But he noted that the prices for fresh vegetables have calmed after surging

late last year and staying at high levels until recently.

     Mild weather in April, a projected hot summer and calmer financial markets

supported the current and outlook sentiment but the rising cost of living is

feared to dampen consumption, a key government survey conducted from April 25 to

April 31 and released last week showed.

     The Economy Watchers Survey sentiment index for Japan's current economic

climate edged up by 0.1 point 49.0 in April on a seasonally adjusted basis for

the second straight month-on-month rise but the index stayed below the key level

of 50 for the fourth consecutive month.

     --PRICES VS. WAGES

     "If the prices for daily goods rise at a fast pace, it will have a negative

impact but they are not rising at the pace to hurt consumption," the official

said. "The income environment is good but it is a matter of balance -- how

income growth will catch up with price hikes."

     The total wage income of employees rose a real 2.1% on month in March and

gained 1.5% on quarter in Q1.

     In another indicator, average cash earnings per regular employee surged a

nominal 2.1% on year in March on temporary factors, marking the eighth straight

year-on-year rise, but in real terms, average wages rose just 0.8% due to the

rising cost of living.

     --SOFT EXPORTS

     In other areas of the economy, weak Japanese exports in the first quarter

were due partly to slower shipments of electronic parts and devices to China in

light of softer-than-expected demand for the iPhone X. But the official said

there is strong demand for Japanese electronics to be used for data centers and

other purposes.

     The government sees industrial production as picking up moderately but

shipments were down in March and inventories entered a buildup phase.

     "But it is not a bad buildup of inventories, judging from our informal

survey of industries. We need to watch but it is a temporary adjustment and not

a serious buildup," the official said.

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