Japan raises economic view for second month, but wary over virus resurgence

By Tetsushi Kajimoto

TOKYO (Reuters) - Japan's government slightly raised its economic view for a second straight month in July, though authorities conceded that the situation remained severe in light of a renewed spike in coronavirus cases in many parts of the world.

The government described the world's third-largest economy as "showing signs of picking up" from the recession induced by COVID-19, underscoring cautious optimism among policymakers as more countries started re-opening economies from lockdowns to rein in the virus.

Although the global economy has shown some recent signs of bottoming out, analysts say demand for cars and other durable goods is unlikely to recover strongly, given the resurgence of infections in major economies.

"The Japanese economy remains in a severe situation due to the novel coronavirus, but it is showing signs of picking up recently," the government said in its economic report for July.

"The pick-up trend in the economy is expected to continue," it added. "However, attention should be paid to the risk that domestic and overseas infections would affect economies."

Japan is in the grip of its worst postwar recession as the health crisis takes a heavy toll of business and consumer activity. The economy is forecast to shrink 5.3% this fiscal year, the biggest contraction in decades, followed by a 3.3% bounce next year, a Reuters poll showed.

With car exports to China, the United States and the European Union bottoming out, and with auto production starting to pick up from June, the government raised its view on exports and output.

Shipments were about to stop contracting, and output showed signs of picking up in some industries, although declining as a whole, it said.

However, a cabinet office official said an exports recovery was unlikely to be very strong.

The government raised its view on private consumption, which accounts for more than half the economy, saying it was "picking up", citing the effect of its 100,000-yen (737 pounds) cash payouts per citizen and demand for household appliances and eating out.

But it also warned a renewed rise in virus cases could weigh on consumer sentiment.

The government also lifted its view on business sentiment for a second straight month in July, saying corporate morale showed a trend towards improvement, a slightly better assessment than the previous month.

(Reporting by Tetsushi Kajimoto; Editing by Shri Navaratnam and Clarence Fernandez)