Japan raises view of economy for first time in 8 months

TOKYO Wed Jan 23, 2013 12:16am EST

TOKYO (Reuters) - Japan's government raised its view of the economy for the first time in eight months on Wednesday as private consumption is holding firm and business sentiment shows signs of improvement due to a falling yen and rising share prices.

Improvement in exports and recently compiled economic stimulus steps will likely put the economy back on a recovery path, but a slowdown in overseas economies remains a risk factor, the government said in its monthly economic report.

The government also said it expects the Bank of Japan to take bold steps to meet a 2 percent inflation goal that the government agreed with the central bank on Tuesday as part of a bold push to escape nagging deflation and to revive the economy.

"The economy is weak, but signs of bottoming out can be seen in some areas," the report said.

That marked an upgrade from last month, when the government said the outlook was weakening due to a slowdown in overseas economies.

Prime Minister Shinzo Abe, who led his Liberal Democratic Party to a landslide election victory in December, has called for aggressive monetary easing by the Bank of Japan and heavy fiscal spending to beat persistent deflation, helping to drive down the yen and giving a boost to the stock market.

Abe's cabinet approved a 10.3 trillion yen ($116.3 billion) stimulus package this month, while the Bank of Japan, under intense pressure from Abe, on Tuesday decided to switch to an open-ended commitment to buying assets next year and double its inflation target to 2 percent.

"(The government) expects the Bank of Japan to promote bold monetary easing so that the price stability target will be achieved as soon as possible," the monthly report said.

In the report, the government raised its view on private consumption for the second month in a row, saying consumer spending is holding firm.

"Auto sales bottomed in October and were on the rise in November and December. Car production is recovering as well. Private consumption is showing signs of bottoming out," a Cabinet Office official in charge of compiling the report said.

"Corporate leaders' views on business conditions are recovering against the backdrop of a recent correction to the yen's appreciation and gains in share prices," he said.

The risk of overseas developments negatively affecting the Japanese economy has diminished, he added, as the U.S. government has averted triggering automatic spending cuts and tax hikes known as the "fiscal cliff" and as a diplomatic row with China has stopped worsening.

Sino-Japanese relations deteriorated sharply after the Japanese government in September bought disputed East China Sea islets, known as the Senkaku in Japan and the Diaoyu in China, from a private Japanese owner, triggering violent protests across China and a boycott of Japanese goods.

Although Asia's two biggest economies are still sending patrol ships to waters near the islands, raising worries that an unintended collision could escalate into a broader clash, anti-Japanese demonstrations have subsided.

Japanese automakers including Toyota Motor Corp (7203.T) and Nissan Motor Co Ltd (7201.T) saw a slow recovery of sales in China in December as the bruising effects of the territorial spat waned.

(Editing by Edmund Klamann)

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