Japan government sticks to 'moderate' economic view despite global risks

By Daniel Leussink

TOKYO (Reuters) - Japan's government left its assessment of the economy unchanged in June, after revising it down twice in the past three months, even as the escalating U.S.-China trade war threatens to take a heavier toll on global growth.

The risks to the economic outlook could add pressure on the government to boost spending to offset the potential blow from a planned sales tax hike in October.

"Japan's economy is recovering at a moderate pace, while weakness in exports and industrial production continues," the government said in the June report released on Tuesday, maintaining its view from last month.

The government downgraded its view for the world's third-largest economy in March and May.

The June report left unchanged its assessment that exports and output remained weak, as well as its view that capital expenditure was increasing at a moderate pace.

"The weakness in exports was due to China's economic slowdown and inventory adjustment of information technology-related goods," an official told a briefing on the report.

But the government upgraded its view on corporate profits for the first time in more than two years, saying they are holding firm at a high level.

It also kept its assessment that domestic demand remained strong enough to offset some of the pain from weaker exports, which would help keep Japan's recovery intact, with private consumption picking up.

"I don't think there is a large, last-minute (demand) rush compared with the sales tax hike in 2014," Japanese Economy Minister Toshimitsu Motegi told reporters at a news briefing. "We're taking enough measures for leveling the rush ahead of the hike and the subsequent drop off."

The economy expanded an annualized 2.2% in the first quarter due to robust capital spending, though analysts expect trade tensions to remain a drag on growth.

The government's plan to raise the sales tax to 10% from 8% in October could also hurt consumption at a time overseas headwinds weigh on exports, some analysts say.

(Reporting by Daniel Leussink; Editing by Kim Coghill)

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