Japan upgrades economic outlook as Abe's policies take hold

Mon May 20, 2013 2:15am EDT
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By Tetsushi Kajimoto and Izumi Nakagawa

TOKYO (Reuters) - The Japanese government upgraded its assessment of the economy on Monday, as emerging signs of an upturn in exports and factory output added to growing evidence that Prime Minister Shinzo Abe's aggressive polices are beginning to reignite growth.

The world's third-biggest economy is gradually recovering, according to the government's monthly report released by the Cabinet Office.

The upgrade was the first in two months, and an improvement from April when it said the economy was showing signs of recovery but still had some weak spots.

The government's latest take on the economy came ahead of the Bank of Japan's two-day meeting ending on Wednesday, which is expected to leave policy unchanged after announcing a sweeping monetary expansion campaign in early April to vanquish 15 years of entrenched deflation.

Policymakers are also likely to take heart from a Reuters Tankan survey which showed manufacturers' sentiment rose for a sixth straight month in May, turning positive for the first time in a year.

According to the survey, released earlier on Monday, increasing optimism among manufacturers was largely driven by export sectors, including electric and precision machinery, that have benefited from a sharp weakening in the yen.

"Manufacturers had been lagging the services sector, but a weak yen and improvements in the U.S. economy mean that manufacturers' sentiment is starting to catch up," said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

"This is in line with the bullish scenario that the BOJ has laid out. There's no need to change policy."   Continued...

Japan's Prime Minister Shinzo Abe (C) has a go at cropping tea leaves in Kitsuki, Oita prefecture, in this photo taken by Kyodo May 18, 2013.REUTERS/Kyodo