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Repeats Story Initially Transmitted at 11:16 GMT Jun 6/07:16 EST Jun 6
By Max Sato
     TOKYO (MNI) - Japan's modest economic recovery is intact despite a few soft
spots, while downside risks arising from disputes between the U.S. and its
trading partners remain uncertain, a senior government official told MNI on
Wednesday.
     Last month, the government left its overall assessment unchanged, saying
for the fifth straight month that the economy was "recovering moderately"
despite negative growth in the first quarter.
     At this point, there is no need to change the overall assessment for June
due in a few weeks, the official said.
     --TRADE RISK UNCERTAIN
     Japanese officials are watching for the drag from heightened protectionism
on global trade after Washington said it is investigating whether imports of
cars and trucks are hurting the U.S. auto industry, a move that could raise the
tariff on imported vehicles to 25% from 2.5%. Japan does not impose duties on
imported vehicles.
     "It is still uncertain whether the Japan-U.S. auto issue will become a risk
to growth. The government is negotiating to prevent high tariffs, so it is too
early to assess the economic impact," the official said.
     About 40% of Japanese automobile exports go to the U.S. market while auto
shipments account for about 15% of overall Japanese exports to the world.
     "The direct impact of the U.S.-China trade friction on Japan is uncertain.
It is a risk but it hasn't caused any specific harm to Japan yet," the official
said.
     Tokyo has asked Washington to exempt Japan from its plan to impose steel
and aluminum tariffs, arguing that Japan is an ally and thus does not pose a
national security threat to the U.S.
     Finance Minister Taro Aso said on Saturday that Japan is "considering"
filing a complaint on the U.S. tariffs to the World Trade Organization,
following the moves by Canada and the European Union.
     --SLOWER FACTORY OUTPUT
     In macro-economic analysis, Japan's industrial production posted the third
straight monthly rise in April, indicating the slump in the first quarter may be
temporary, but manufacturers are cautious about output in May and June amid high
inventories, data released last week showed.
     Factory output rose 0.3% on month in April, slowing from +1.4% in March.
However, shipments gained 1.8% after +1.2% in March while inventories posted the
first drop in three months.
     "This is not a bad development. Manufacturers increased shipments in
response to demand while reducing production to trim inventories," the official
said, suggesting that the government will stick to its view that industrial
output is "increasing moderately."
     --CONSUMPTION VS SALES
     Among other indicators, April saw real average household spending fall
1.3%, posting the third straight year-on-year drop, data released Tuesday
showed.
     In light of slow real wage growth and lower public pension payouts,
spending on gift money has been reduced. Many consumers are also booking their
own hotels and transportation, bypassing travel agencies, which has led to lower
spending on domestic package tours.
     But the official noted that retail sales posted solid gains from both a
year earlier and the previous month in April, indicating consumption may rebound
in the second quarter after the severe winter weather caused a slump in the
first three months of the year.
     "The weather was mild in April, supporting demand for spring and summer
clothing. Passenger car sales also rose in the month," he said.
     Retail sales rose 1.6% in April for the sixth straight year-on-year rise
and gained a seasonally adjusted 1.4% on month for the first rise in two months.
     The official said the government is waiting for April data from the Cabinet
Office's Private Consumption Integrated Estimates Index, which is based on both
supply- and demand-side data. The index posted a slight drop on quarter in Q1.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com