The government raised its assessment of the economy for May on Friday, saying downside trends are coming to a halt, helped by upbeat industrial production, though an uncertain outlook for the global economy remains due to the U.S.-China trade dispute.
The Cabinet Office said its coincident index of business conditions for May rose 1.1 points from the previous month to 103.2 against the 2015 base of 100.
For March, the government used the phrase “worsening,” the most pessimistic of its five expressions, for the first time in more than six years, suggesting the possibility that the world’s third-largest economy was heading into a recession. It maintained the evaluation for the following month.
The upgrade followed the release last month of strong industrial output data, a major component of the coincident index.
On June 28, the Ministry of Economy, Trade and Industry said national output in May rose 2.3 percent from the previous month to 105.2, the highest level since 105.6 last October, supported by active production in the automotive sector.
But economists said the expansion in output is not expected to continue that long as it has been driven by last-minute buying by consumers ahead of a consumption tax hike in October.
They say production and exports are unlikely to grow sustainably on the back of the trade friction between the world’s two largest economies.
Prime Minister Shinzo Abe’s government is set to raise the consumption tax to 10 percent from the current 8 percent in October as planned, a move that could dampen spending and hurt the economy.
Meanwhile, other government data showed Friday that Japanese households increased their spending for the sixth consecutive month in May, boosted by expenditure during the extended holiday to celebrate the new emperor’s ascension to the throne.
Spending by households with two or more people rose 4.0 percent in real terms from a year earlier to ¥300,901 ($2,790) in the reporting month, according to the Ministry of Internal Affairs and Communications, marking the biggest increase since May 2015.
The ministry upgraded its assessment for the first time since January, saying it is “picking up.” It had maintained since the January data release that household spending was showing “signs of recovery.”
An unprecedented 10-day holiday through May 6 led to increased spending on leisure and transport, a ministry official said.
Unseasonably high temperatures in late May also prompted people to spend more on beverages and ice cream while boosting sales of summer clothes and air conditioners, the official said.
Household spending is viewed as a key indicator of private consumption, which accounts for nearly 60 percent of Japan’s gross domestic product.
After adjusting for inflation, the average monthly income of salaried households with at least two people edged down 0.2 percent from a year earlier to ¥457,376, falling for the first time in seven months, hit by reduced working hours for part-time employees due to the extended holiday break.