TOKYO
The Japanese government raised its assessment of the economy in January for the first time in seven months due to rising consumer spending, an encouraging sign that inflation could start to pick up this year.
“Japan’s economy is gradually recovering,” the Cabinet Office said in its monthly economic report on Friday. That marked an upgrade from December, when the Cabinet Office said the economy is on a recovery path.
The government also raised its assessment of consumer spending for the first time in seven months after retail sales, household spending, and new car sales gained momentum towards the end of last year.
Consumer spending is “recovering,” which is an upgrade from the phrase “gradual recovery” used in last month’s report.
The assessment increases the chance that the government will declare an end to deflation, which would amount to a declaration of victory for Prime Minister Shinzo Abe’s ambitious campaign to reflate the economy.
Data for November and December showed consumer spending bounced back from a brief lull caused by bad weather, a Cabinet Office official told reporters.
Improving consumer sentiment, and rising restaurant sales, are also reasons to be optimistic about consumption, the official said.
However, the Cabinet Office left unchanged its assessment that consumer prices are flat, showing it may still take some time for improvements in the economy to feed through to consumer prices.
The Cabinet Office also stuck with its view that industrial output and capital expenditure are gradually expanding.
Abe took office in late 2012 with a bold plan to shake off 15 years of deflation and sub-par growth.
Gross domestic product has expanded for the past seven quarters, the strongest run of growth in a decade. The output gap shows demand exceeds supply by the most in more than nine years. Stock prices are their highest in 26 years, and corporate profits are near an all-time high.
Business investment is rising, exports are growing, and the labour market is the tightest in decades, due partly to a shrinking population.
Japan’s economy minister has hinted that it is possible to declare an end to deflation before consumer prices reach the Bank of Japan’s 2 per cent inflation target.
In November, the core consumer price index, which includes oil products but excludes fresh food, rose 0.9 per cent year-on-year. This is an improvement over 2016, when prices fell, but still not close to the BoJ’s price target.
