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Japan government raises economy view as sales tax hangover fades

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[July 17, 2014]  TOKYO (Reuters) - Japan's government raised its assessment of the economy on Thursday because a decline in consumer spending after a sales tax increase is starting to fade due to improving consumer sentiment and a tight labor market.

It was the first time in six months that the government has upgraded its overall assessment.

The government said personal spending was showing signs of recovery, an upgrade from last month, as an increase in the nationwide sales tax to 8 percent from 5 percent on April 1 was having only a temporary impact on consumption.

"There are still some weak points, but there are signs that consumption is recovering," the Cabinet Office said in its monthly economic report. "We expect the recovery to continue as the jobs market and wages improve."

Personal consumption accounts for about 60 percent of the economy.

Sales of electronics and home appliances are recovering, while sales of cars are showing signs of bottoming out, a Cabinet Office official said.

Bank of Japan Governor Haruhiko Kuroda expressed a similar view to the government on Tuesday, when he said he expected strong demand for labor and upward pressure on wages to bolster consumer spending.

However, the Cabinet Office lowered its assessment of capital expenditure for the first time in more than a year and a half due to a drop in capital goods shipments and machinery orders.

Capital expenditure had been rising but is starting to weaken, the report said.

The government maintained its view on exports, saying they were flat. It also still viewed industrial output as weak after the sales tax rise.

Policymakers and private-sector analysts expect the economy to have contracted in the April-June quarter due to the sales tax increase, but growth is expected to resume in the current quarter as domestic demand remains strong.

(Reporting by Stanley White; Editing by Alan Raybould)

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