* May exports down more than expected, but small improvement
* Government upgrades its view of economy first time since
* Pimco warns pre-disaster output levels may prove elusive
By Hideyuki Sano and Kaori Kaneko
TOKYO, June 20 The Japanese government upgraded
its view of the economy's performance and outlook for the first
time in four months on Monday, but disappointing export data
showed that the recovery from the March earthquake and tsunami
would be anything but smooth.
The cabinet's monthly report cited progress that
manufacturers were making in restoring production and supply
chains wrecked by the March 11 disaster. The improved assessment
of production, exports and consumption -- the first since
February -- follows last week's upgrade in the Bank of Japan's
view of the economy.
"A recovery from supply constraints and factory production
is helping exports and sentiment. This supports the view that
the overall economy is moving in an upward direction," said
Shigeru Sugihara, director of macroeconomic analysis at the
The government, however, stressed that scars left by the
disaster that ravaged the nation's northeast, killing up to
23,000 people and triggering the worst nuclear crisis since
Chernobyl, were still all too visible.
It also flagged doubts about the strength of the global
economy, high energy costs, the euro zone debt crisis and
concerns about the stability of power supplies as potential
May trade data published on Monday were a case in point.
While exports edged up 2.5 percent compared with April and a
slump against the year-ago period was less pronounced, the
improvement fell short of forecasts, a warning sign that
overseas demand for Japanese good may prove weaker than earlier
"Overall, the data shows that Japan's economy appears to be
bottoming out, but the speed of the recovery will be moderate,"
said Takeshi Minami, chief economist at Norinchukin Research
"Emerging economies are tightening monetary policy so they
may experience some slowdown, while advanced economies are also
seeing very slow growth. That may affect Japanese exports in the
Exports fell 10.3 percent in May from a year earlier, less
than a 12.4 percent drop in April but more than a median
forecast for an 8.4 percent decline, and after a 12.4 percent
drop in April, keeping the trade balance in deficit for the
second month in a row.
The March disaster knocked the world's third-largest economy
into its second recession in three years and output is expected
to shrink again this quarter.
Yet a combination of domestic activity spurred by Japan's
biggest rebuilding effort since the years after the World War
Two and solid foreign demand for its exports is expected to help
the economy recover in the second half of the year.
Evidence that Japanese carmakers and other manufacturers
were ahead of initial targets in fixing supply networks and
restoring production spurred talk of a V-shaped recovery and
boosted foreign investment in Japanese stocks.
But, addressing a Reuters summit devoted to Japan's
reconstruction, a senior manager at a Pimco bond fund warned
that it may be hard for the Japanese industry to return to
pre-crisis output levels.
"Global manufacturers need to think about diversification of
supply chains. Some Japanese parts production could be replaced
by other Asian countries," said Tomoya Masanao, managing
director at Pimco Japan.
Among key economic areas, the government raised its view on
factory output and exports for the first time since February,
saying they show "some upward movements" after declining due to
Another concern is that a political deadlock in a divided
parliament is blocking policies needed to revive the economy,
get the nuclear crisis under control and start tackling
long-term challenges of climbing public debt and social security
The government released the first 4 trillion yen ($50
billion) batch of emergency spending last month and aims to get
another installment through parliament in July. But uncertainty
over when Prime Minister Naoto Kan will make good on his promise
to step down and whether his successor will do better in winning
opposition support is clouding the outlook for a
Kan, already Japan's fifth premier in as many years,
survived a no-confidence vote earlier this month after promising
critics in his own party he would quit. He did not say, however,
when and the opposition have declined to cooperate on key bills
until Kan goes.
Kyodo news agency reported on Monday that Kan could try to
break the impasse by saying that he would quit on the condition
that the parliament passed a second extra budget and a bill to
issue bonds for this year's budget.
($1 = 80.055 Japanese Yen)
($1 = 80.055 Japanese Yen)
(Writing by Tomasz Janowski; Editing by Kim Coghill)