The government on Tuesday maintained its view that the economy is recovering at a moderate pace in its monthly report for December, citing an improvement in corporate sentiment and slowing inflation.
The Cabinet Office said Japanese firms' views on business conditions are "improving," an upgrade from its November report. Consumer prices, a key gauge of inflation, have been "rising at a moderate tempo recently," the first change in wording since May 2022.
Assessments of other key components of the economy were retained, ranging from private consumption and business investment to industrial output and exports.
The latest monthly economic report came as the Bank of Japan's Tankan report for December showed last week that confidence among manufacturers and nonmanufacturers continued to improve. The uptick was partly because they have been able to pass on higher costs to consumers in line with recovering demand after the COVID-19 fallout.
The Japanese economy, which marked its first contraction in four quarters in the July-September period, is expected to stage a rebound in the current quarter ending in December.
"The Japanese economy is recovering at a moderate pace, although it recently appears to be pausing in part," the report said, a month after the government downgraded the view for the first time in 10 months.
"Full attention should be given to price increases, the situation in the Middle East and fluctuations in the financial and capital markets," the document said.
Rising prices of everyday goods have weighed on consumer sentiment, as real wage growth has yet to keep pace with inflation. Still, consumer inflation has been slowing in recent months, as the effects of surging import costs of energy and raw materials have been waning.
The Cabinet Office references "core-core" consumer prices, which strip away both energy and fresh food items, in the report.
Private consumption is "picking up" while the recent recovery in business investment appears to be "pausing." Exports have shown signs of "picking up recently," according to the report.
Economic developments overseas have a strong bearing on the outlook for the export-driven Japanese economy amid concerns about the negative impact of aggressive interest rate hikes in the United States and Europe.
The government maintained its assessment of the global economy, saying that it is "picking up despite weakness in some regions," using the same expression for the eighth straight month.
