THE Japanese government upgraded its assessment of the economy yesterday, 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 tomorrow, which is expected to leave policy unchanged after announcing a sweeping monetary expansion campaign in early April to vanquish 15 years of entrenched deflation.
Japanese politicians are also likely to take heart from a 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 yesterday, 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 US 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."
Since Mr Abe, pictured, unveiled his strategy in November to end two decades of economic stagnation, the yen has slumped to four-and-a-half year lows versus the dollar and share prices have rocketed by 70pc.
Mr Abe is hoping that the wealth-creating effects of a buoyant stock market and expectations for further improvement in the broad economy will generate a virtuous circle of consumption, investment and employment that will ultimately revitalise growth.
"We are implementing fiscal and monetary policies under Abe's administration, and this has set the stage for a V-shaped recovery," said Economics Minister Akira Amari said.
"Normally exports lead growth, but this time consumer spending is playing the leading role," Mr Amari told a news conference after the government released its latest assessment of the economy.