TOKYO, Nov 20 - The Japanese government upgraded its assessment of the economy in November, although it remained cautious about the recovery because of stock and currency market moves. "The economy is recovering," the Cabinet Office said in the headline phrase of its monthly report released on Thursday. An official told a briefing that that constituted an upgrade from the October view that the economy was "showing signs it is heading towards a recovery". The latest report underscored recent evidence that the economy was picking up, led by growth in exports and business investment, both fuelled by buoyancy in overseas economies. Data last week showed the economy grew by 0.6 percent in the three months to September, or an annualised 2.2 percent. That was far slower than the annualised 7.2 percent growth in the U.S. economy and China's 9.1 percent expansion over the same period but it marked the seventh straight quarter of growth, the longest expansion in Japan since a run that ended in early 1997. The Cabinet Office said exports continued to pick up and that economic recovery in the United States and elsewhere in the world brightened the outlook for Japan.
Industrial production was also recovering as factories churned out more goods such as digital cameras and mobile phones, it said. That view was also upgraded from October when it said production was flat. But while it expected a recovery in the overall economy to continue, the Cabinet Office said a close eye had to kept on both the stock and currency markets. Policymakers are concerned about the impact of a strong yen on exports and its recent rise helped drag Tokyo's Nikkei stock average <.N225> down to three-month lows this week. The yen rose to a three-year high of 107.50 to the dollar on Wednesday and only retreated after what traders thought was intervention by the Japanese authorities. Late on Thursday it was quoted around 109.15 per dollar. Jun Saito, the Cabinet Office's director of economic assessment and policy analysis, played down the stock market correction, saying corporate profits were improving. He also told reporters that a chunk of the improvement in production and business investment was due to domestic demand, so it was not wholly dependent on exports. The government upgraded its view on consumer spending, which accounts for over half of Japan's economy and whose weakness has raised concern over whether the recovery is sustainable. It said personal spending was flat but that it seemed to be supported. "The cool summer did have some effect (on consumer spending) but the impact was limited," Saito said. "Wages have stopped falling and consumer sentiment is improving so the chances of consumer spending falling are getting smaller," he said.//