Japan's government raised its assessment of the economy, saying that production and exports are increasing, while adding that a strengthening yen poses risks for the recovery.
"The Japanese economy is picking up while difficulties continue to prevail" because of the fallout from a record earthquake and tsunami in March, the Cabinet Office said in a monthly report released in Tokyo Wednesday. It left the evaluation unchanged last month after raising it in June.
The government's increased optimism about the economy is tempered by a rising yen that could weigh on exports, a key driver of the recovery. The currency's advance to levels close to post-Second World War highs prompted Japan to sell yen on August 4 in the first market intervention since March.
"Japan's recovery is likely to continue after the economy had such a big plunge in the wake of earthquake," said Yoshimasa Maruyama, a senior economist at Itochu Corp in Tokyo.
"Still, we are certainly seeing mounting risks including a strong yen and a slowdown in the global economy."
Improvements in production and exports were a key factor for the upgrade this month, the Cabinet Office said. Factory output increased 3.9 per cent in June from May, when it rose 6.2 per cent, the biggest gain since 1953, according to a government report released last month.
Akio Toyoda, chief executive officer of Toyota Motor Corp said in late June that the car-maker's recovery from the earthquake in north-eastern Japan has "far exceeded expectations", with production in Japan to return to normal after July and North American output rebounding by September.
Still, "volatile fluctuations" in currency and stock markets are threats, the Cabinet Office said.