Japan's government upgraded its assessment of the economy in September for the seventh time this year because of rising capital expenditure, in another sign Prime Minister Shinzo Abe's reflationary policies are boosting growth.
The upgrade in the monthly economic report suggests the government sees the economy as strong enough to handle scheduled sales tax increases, although it did moderate its views on consumer spending and exports.
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On deflation, the government's view was unchanged from August, saying Japan is approaching an end to deflation as consumer prices excluding fresh food and energy were firming up.
"The Japanese economy is on the way to recovery at a moderate pace," the government said in its report for September, offering a more optimistic view than last month when it said there were some moves towards a sustained recovery.
It said business investment was showing signs of picking up mainly among non-manufacturers, it said, stronger than last month's view that capital expenditure was bottoming out.
Earlier this week, economic growth was revised up sharply to an annualized rate of 3.8 percent in the second quarter as capital expenditure rose for the first time in a year and a half.
While domestic demand has been strong in 2013, the assessment of consumer spending was downgraded as gains have slowed somewhat.
"This is only a slight downgrade," a government official told reporters at a briefing.
"We still think consumer spending will continue to improve. The gains in capital expenditure are also an important factor for a self-sustained recovery."
The government also lowered its assessment of exports, saying that recent gains in shipments have started to slow.
On Thursday, a source confirmed reports that Abe has decided to go ahead with a planned two-stage doubling of the sales tax, although he will cushion its impact with a support package worth around 5 trillion yen ($50 billion).
Abe has put fiscal spending, aggressive monetary easing and economic reforms at the center of his drive to end 15 years of mild deflation and economic malaise.