Japanese consumer spending is "picking up," the Cabinet Office said in its monthly economic report, suggesting an economic recovery may be spreading from exports and business spending.

　　The economy as a whole "continues to recover steadily," the Cabinet Office said in a report released in Tokyo, keeping its assessment unchanged from last month. The government raised its evaluation of consumer spending for the first time in three months.

　　A gain in consumer spending, which accounts for more than half of the world's second-largest economy, will bolster a recovery from the third recession since 1991. Consumer spending rose an annual average 3.4 percent during the 1980s, compared with an average of 1.4 percent since then.

　　"The recovery has gone from being focused on manufacturers, to consumers also reaping the benefits," said Ayako Mitsui, an economist at UBS Securities Japan Ltd. "Consumer sentiment is also stronger than we expected."

　　Business spending by companies including Sharp Corp and Canon Inc accounted for half of the annual 6.4 percent pace of economic growth in the fourth quarter, the fastest in 13 years. Consumer spending and net exports contributed about a quarter each.

　　Sales at department stores in Tokyo, including Mitsukoshi Ltd and Takashimaya Co, rose for the first time in more than two years in February, industry figures showed yesterday.

　　Mitsukoshi, Japan's third-largest department store operator, will probably report a group pretax profit of 11.5 billion yen (US$104 million) for the business year ended on February 29, exceeding the company's own forecast of 9.4 billion yen, the Nihon Keizai newspaper said in a report last week.

　　The Topix Retail Index, which tracks shares of 121 retailers, rose 3 percent yesterday, outpacing the 1.6 percent gain in the broader Topix Index.

　　The Cabinet Office said in the March report consumer spending is "in an incipient recovery." In February it said there were "signs of an incipient recovery."

　　The government also raised its assessment of the trade surplus, saying exports are "rapidly rising," and of housing construction, saying it has "picked up recently." The current account surplus, the broadest measure of trade because it includes trade of goods and services, widened to a record 1.69 trillion yen in January, seasonally adjusted, from February.

　　Improvements in consumer spending, trade and housing don't warrant raising the overall economic assessment, according to the Cabinet Office.

　　Needed for the government to raise the overall assessment are "stabilization in the labor market, more improvement in consumer spending, and capital spending increasing among all industries and at companies of all sizes," said Kenji Umetani, who briefed media on yesterday's report.

　　The report says labor conditions remain "severe" with the jobless rate at 5.1 percent, near the record 5.5 percent, and wages seen declining.

　　(Bloomberg News)