TOKYO Japan's government raised its assessment on the economy for a second straight month in June as pick-up in exports and industrial output is supporting a steady economic recovery led by its sweeping fiscal and monetary stimulus policies.
The economy is picking up steadily, the government said in its monthly economic report issued on Thursday, striking a slightly more upbeat note than the previous month when it was described as improving gradually.
The upgrade came as a further encouraging signal for Prime Minister Shinzo Abe's efforts to pull the world's third-biggest economy out of nearly two decades of deflation and stagnation, with his policy prescription dubbed 'Abenomics'.
The diagnosis was in line with that of the Bank of Japan, which raised its view on the economy for a sixth straight month on Tuesday, saying it is picking up. The BOJ held off on new steps arguing that bond markets had stabilized.
"Exports, which are key (to growth), show a clear trend of pickup and output is rising for five months in a row," a Cabinet Office official said. "As such we see some signs of a favorable cycle of demand leading to output and household income."
The report made no mention of recent financial market turbulence as a risk because it was seen as a short-term swing rather than a symptom of structural problems such as those plaguing the euro zone, the official added.
Japan's Nikkei share average .N225 entered bear market territory for the second time in less than a week on Thursday, having plunged more than 20 percent from a 5-1/2-year high hit on May 23. It had staged a short-lived rebound on Monday.
The dollar fell below 95 yen to its lowest level since April 4 when the BOJ unleashed an intense burst of monetary stimulus, which has led to volatility in bond markets.
Japan's economy grew at an annualized 4.1 percent rate in the first quarter, led by firm consumption and a rise in exports, but capital spending slid for a fifth straight quarter as firms have been reluctant to boost spending on plant and equipment.
"We won't see a fully-fledged recovery until capital spending recovers, which would help sustained growth with jobs and income gains," the official added.
Japan's core machinery orders fell more than expected in April from the previous month, down for the first time in three months as companies remained hesitant to boost capital spending, data showed on Wednesday.
The government report said exports are showing a rising trend, which was in an upgrade from May for a third straight month, with U.S.-bound shipments of cars increasing and exports of car parts to China stabilizing.
The report also said factory output is picking up, which was the second straight month of upgrade. Previously the government had said production was rising moderately.
Private consumption is improving and capital spending is leveling off, the Cabinet Office said, maintaining the same assessment from last month's report.
(Reporting by Tetsushi Kajimoto; Editing by Kim Coghill)