Originally created 06/17/04

Japan says improving corporate profits are helping economic recovery



TOKYO -- Improving corporate profits are adding an extra push to the nation's recovery, the Japanese government said Wednesday.

The Cabinet Office report for June boosted its assessment of corporate profits and business sentiment, saying they were now "improving greatly," upgrading its May view that they were "increasing."

The world's second-largest economy will likely keep recovering, as the pickup in the global economy helps boost domestic corporate activity. Improvements in labor conditions will also contribute to sustain the recovery, the report said.

A wave of restructuring is helping lift corporate profitability and consumer spending, which after months of being flat is gradually picking up, the report said.

Exports to the rest of Asia as well as to the United States are helping drive Japan's corporate recovery, it said.

The report backed other recent data, including a Bank of Japan economic assessment which said the recovery in Japan is widening.

It warned, however, that higher crude oil prices posed a potential risk to the recovery, saying that the impact of oil prices on the global and domestic economies needed to be monitored.

The report also said that recent spikes in long-term interest rates must be monitored carefully.

Officials have said that if the current economic recovery continues and deflationary pressures evaporate, longer-term interest rates will have to rise, but the government does not want a premature rise in rates that could undermine the economy.