REPEAT:MNI SOURCE: Modest Japan Pickup Intact; Trade Uncertain

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