In its semiannual outlook, the Bank of Japan predicted that the world's second biggest economy would see faster growth this fiscal year, which began April 1, and a possible end to deflation within two years. Gross domestic product will probably expand 1.8 percent this year, the central bank said, better than its previous forecast of 1.3 percent.
The report credited robust growth in overseas markets, particularly in Asia, for fueling Japanese exports and production. Stock prices and corporate profits are up. That should boost capital expenditures and eventually lead to more jobs, higher wages and stronger domestic demand.
"Given these developments, the momentum for a self-sustaining recovery in private consumption is likely to build gradually," the BOJ said.
Government data Friday showed that the country's recovery, though advancing, remains uneven. Unemployment worsened, and prices continued to fall in March. At the same time, household spending rose and factory output expanded.
Japan's seasonally adjusted jobless rate rose to 5 percent in the first increase in five months. The figure is up from 4.9 percent in February. The number of jobless totaled 3.5 million during the month, up 4.5 percent from a year earlier. Those with jobs fell 0.6 percent to 62.1 million.
Goldman Sachs economist Chiwoong Lee describes the labor market as having "no spark."
"Viewed over several months, the path is flat," he said in a note to clients. "Deterioration has eased but not given way to improvement."
That has dragged prices lower as stores scramble to attract increasingly finicky consumers.
Japan's core consumer price index, which excludes prices of fresh food, declined 1.2 percent in March from a year earlier. The result marked the 13th straight month of decline. Prices fell for a swath of goods from fuel to furniture.
Core CPI for the Tokyo area, seen as a barometer of future price trends nationwide, retreated 1.9 percent in April. In its report, the central bank said CPI may turn positive next fiscal year starting April 2011.
Preliminary data show industrial production edged up 0.3 percent in March from the previous month on growing export demand.
The government also said household spending during the month jumped a real 4.4 percent from a year earlier. Economists credit the solid figure to tax breaks and other government incentives to spur shopping. But they warn that consumption may wane once the programs end later this year.
http://news.yahoo.com/s/ap/20100430/ap_on_bi_ge/as_japan_economy_5
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