May 23, 2018 / 9:22 AM / 9 months ago

Japan sticks with assessment economy is 'gradually recovering'

TOKYO (Reuters) - Japan left unchanged its assessment in May that the economy is gradually recovering, showing policymakers remain confident the economy will recover from a contraction in the first quarter.

“Japan’s economy is gradually recovering,” the Cabinet Office said in its monthly economic report for May on Wednesday. That was unchanged from the previous month.

The government left unchanged its assessment that consumer spending is “recovering” as spending on home electronics shows signs of improving and as households spend more on dining out.

The government said capital expenditure is gradually expanding, also unchanged from last month.

Japan’s economy ended its best run of expansion in decades as gross domestic product contracted more than expected in the first quarter of this year due to weak consumer spending, business investment and exports.

The world’s third-largest economy shrank 0.6 percent on an annualized basis in the first quarter.

Many economists say this decline will be temporary, but there are doubts about how strongly the economy will bounce back.

The Cabinet Office expressed confidence that the economy would quickly rebound due to a tight domestic labor market and solid demand from other countries for Japanese goods and services.

“The decline in first-quarter gross domestic product came after eight quarters of growth, so we are not changing our overall assessment,” a Cabinet Office official told reporters.

“There were a lot of temporary factors, such as cold weather pushing up vegetable prices, which led to lower consumer spending.”

The possibility of trade friction with the United States remains a risk to Japan’s export-focused economy.

U.S. President Donald Trump’s administration is negotiating with China to import more energy and agricultural commodities in order to reduce the U.S. trade deficit with the world’s second-largest economy.

Some Japanese policymakers are concerned that the United States will seek similar measures from Japan, which some U.S. lawmakers criticize for its trade surplus.

Reporting by Stanley White; Editing by Jacqueline Wong

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