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Japan Government Upgrades View on Exports, Jobs

The Japanese government revised up its view on exports and job conditions in its monthly economic report, underscoring growing optimism over the nation's economic outlook, but it left its overall economic assessment unchanged.

The report comes as the International Monetary Fund raised its forecast for Japanese growth in calendar year 2007 to 2.6% from the 2.3% pace it had estimated in April.

Data due next week is expected to show the economy grew for the 10th straight quarter in April-June, albeit at a much slower pace than in the previous quarter.

"Exports are increasing moderately," the government said in its report for August released on Tuesday, revising up its assessment on exports for the first time in 16 months. In the July report, it said exports were flat.

Strong demand for Japanese goods in Asia and Europe offset softness in U.S.-bound exports, leading to the upward revision, a Cabinet Office official said in a briefing.

The government also upgraded its view on employment conditions for the first time since June 2005, saying they were "improving steadily." That compared with the July assessment that improvements in job conditions were broadening.

In a separate report, the government said Japan needs faster productivity growth to sustain its economic expansion as the population declines.

Japan's jobless rate fell to a nine-year low of 3.7% in June, a sign that tighter job conditions may eventually push up prices as forecast by the Bank of Japan.

The government kept its overall economic assessment unchanged in the August report, saying the economy is "recovering despite some weakness in industrial production".

While industrial output rose 1.2% in June from the previous month, it barely grew in April-June from the previous quarter as high-tech inventory adjustments kept firms from boosting output.

An earthquake that hit northwestern Japan in mid-July and disrupted automobile production is also expected to have pushed down overall output for that month, the Cabinet Office official said.

Consumption View Intact

The government maintained its assessment on personal consumption, which accounts for more than half of economic activity, saying it is picking up.

Overall household spending rose 0.1% in June from a year earlier, falling short of a median market forecast of a 0.7% increase.

Japan is currently enjoying its longest period of expansion since World War Two, though at a slower pace than in previous growth phases.

A Reuters poll showed that economic growth is expected to have slowed to an annualized 0.9% in April-June, partly in reaction to a hefty 3.3% increase the previous quarter.

Preliminary gross domestic product data is due at 8:50 a.m. on Monday, Aug. 13.

Analysts say the data, even if weak, is unlikely to keep the Bank of Japan from raising its key policy rate from the current 0.5% as early as its next policy meeting on Aug. 22-23.

The central bank has said it would need to raise rates gradually in line with improvements in economic and price conditions.

While consumer prices have fallen slightly in recent months, BOJ officials have said prices will start rising again later this year as tighter labor market conditions gradually push up wages.

In lifting its economic forecasts for Japan, the IMF said in a statement that inflation would stay flat this year and gradually pick up as the economy expands.

The IMF also said Japanese monetary policy was still appropriately accommodative, given very muted inflation risks, but it expected interest rates would be lifted going forward.

The Japanese government on Monday raised its estimate for the nation's real economic growth for fiscal 2007/08 to 2.1% from a January forecast of 2.0%.