Japan's worst post-war recession may be almost over, the central bank said today, while the government upgraded its assessment of the economy for the first time in more than three years.
The Japanese economy is set for a 'mild recovery' and may return to positive growth in the current quarter to June, Bank of Japan governor Masaaki Shirakawa said.
It would be the first time in five quarters that the economy has expanded, marking an end to its worst recession since World War II.
'The sharp deterioration in economic and financial conditions in Japan and abroad since last autumn is starting to level out and there is a prospect of a mild recovery ahead', Shirakawa said.
'It is very likely that the severe economic conditions will continue for some time, and the recovery thereafter will inevitably be mild and attended by high uncertainty,' he added, however.
Japan announced last week that its economy suffered its sharpest contraction on record in the three months to March, shrinking 4% compared with the previous quarter, but hopes are growing that the worst is over.
Meanwhile, the government today upgraded its assessment of the world's second largest economy for the first time in more than three years.
'While the economy is in a difficult situation, the tempo of worsening has become moderate,' the Cabinet Office said in a monthly report.
'Exports and industrial production are nearing the bottom,' it said. At the same time corporate profits are falling sharply and business investment is declining, it added.
'The employment situation, which is worsening rapidly, is severe. Private consumption is decreasing moderately. With worsening employment situation, the economy is likely to remain severe for the time being,' it added.
The government follows the central bank in upgrading its assessment of Asia's largest economy. On Friday, the Bank of Japan raised its view for the first time in almost three years, saying the recession appeared to be easing.
The Bank also painted a more positive picture of the outlook in its monthly economic report, saying that the pace of deterioration in Japan's economic conditions was 'likely to moderate gradually.'
Japan entered recession in the second quarter of 2008 as demand for its cars, electronics and other exports slumped amid the severe global economic downturn.
But recent signs have fuelled hopes that the worst may be over, with exports and factory output both rising slightly in March from the previous month.
Analysts expect government data due this week to show that industrial production rose 2.5% month-on-month in April, marking the first back-to-back increases in more than a year.
But they say that a full-fledged recovery is unlikely while the US and European economies remain weak, given Japan's reliance on exports as the main engine of its economic growth.