Economy continues rise; outlook still uncertain

The uptrend in the economy continues on the back of solid external demand, but the outlook remains uncertain as the corporate sector appears to have begun to lose steam, the government said in a monthly report released Tuesday.

"The economy is recovering, while some weakness is seen," the December report says, leaving its assessment unchanged from the previous month and confirming that the current expansion cycle — already the longest in the postwar period — has stretched to its 71st month.

The headline phrase was modified slightly from the November report by removing the word "recently" in reference to weakness, but it did not affect the overall assessment, a Cabinet Office official said.

As for details of the current state of the economy, the government downgraded its assessment on corporate profits, saying, "corporate profits' improvement appears to be pausing."

It is the first downward revision in 33 months. The November report described corporate profits as "improving."

On the other hand, the government lifted its view on capital investment from "generally increasing while weak movements have been seen recently" to "increasing moderately." It was the first upward revision in 27 months.

However, the Cabinet official said the halt in the improvement of corporate profits could weigh on future business investment.

"We want to carefully observe the development of capital investment from now," the official said.

The latest report also effectively gives up a government scenario under which high corporate profits will spill over to the household sector, eventually boosting private consumption.

"The economic recovery is expected to continue being supported by the continuing improvement of corporate profits," the report says, without referring to the spillover effect of high corporate profits on the household sector as seen in previous reports in recent months.

"It appears difficult now to maintain such a scenario, at least in the short run," the official said, saying wages and income have remained flat recently.

The report also warns of risks to the economy, such as fluctuations in financial and capital markets, and soaring crude oil prices.