TOKYO, May 20 (Reuters) - Japan's government upgraded its assessment of the economy in May for the first time in two months, in a sign growth is accelerating as exports and factory output pick up.
The economy is gradually recovering, according to the government's monthly economic report released on Monday. That was an upgrade from last month, when the government said the economy was showing signs of recovery but still had some weak spots.
Japan's gross domestic product expanded in January-March at its quickest pace in a year, data showed last week, as gains in consumer spending and a rebound in exports helped the economy recover from a slump last year.
The upgrade highlights the success of Prime Minister Shinzo Abe's policies, which combine stimulus spending with aggressive monetary easing to pump-prime the economy and are resulting in a sharp weakening of the yen.
'We expect the economy to continue to recover as exports improve and as economic stimulus and monetary policy steps bolster sentiment,' the Cabinet Office said in the report.
Abe, who is preparing to lead his Liberal Democratic Party in an upper house election in July, has put in place aggressive monetary easing and heavy fiscal spending with the aim of beating 15 years of nagging deflation.
The policy mix, dubbed 'Abenomics', has pushed the yen to a 4 1/2-year low and sparked about a 75 percent rally in Japanese shares since November.
The government said exports are showing signs of recovery, which was in an upgrade from last month as the weak yen pushes up export volumes of cars, steel and chemicals, according to the Cabinet Office. That marked the second consecutive month of upgrades.
The report said factory output is gradually recovering, which was the first upgrade in two months. In April, the Cabinet Office said output was only showing signs of recovery.
Private consumption is recovering and capital expenditure is bottoming out, the Cabinet Office said, which was unchanged from last month's report.
The Bank of Japan stunned global financial markets last month by agreeing to double the amount of government debt it holds over the next two years to end deflation and achieve its 2 percent inflation target.
The overhaul of monetary policy has helped shares rally and pushed down the yen, but it caused yields to rise temporarily, leading the BOJ to boost money market operations to reduce volatility and push yields lower.
(Reporting by Stanley White; Editing by Kim Coghill) Keywords: JAPAN ECONOMY/REPORT
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