Japan's government upgraded its assessment of the economy in February for a second consecutive month on mounting evidence that export demand and industrial production are pulling the economy out of a lull.
The government raised its assessment of exports for the first time in 16 months as shipments to fast-growing Asian countries have recovered from a dip at the end of last year, the Cabinet Office said in a monthly report on Monday.
A strong rise in factory output in December also prompted the government to raise its view of industrial production for a second straight month, the report showed.
The government warned on energy prices, the report showed, as unrest threatening to topple dictators in the Middle East and North Africa pushes up oil futures prices.
"Our assessment is that the economy is showing signs of emerging from a lull, but domestic consumption is a little weak," Economics Minister Kaoru Yosano said.
"There's a lot of talk about bubbles forming in emerging markets, but the more immediate concern is the political situation in the Middle East."
The government's view of the economy is broadly in line with the Bank of Japan, which upgraded its own assessment last week and kept its ultra-easy monetary policy on hold.
"(Japan's economy is) showing signs of picking up and emerging from a lull," the government report for February said.
Last month, the government said the economy was at a standstill but showing some signs of picking up.
In order to say that the economy has fully escaped from its lull, gross domestic product would need to expand in both nominal and real terms, Yosano said. Another condition that needs to be met is for consumer prices to rise above zero for a few months, he said.
Exports are picking up, which is an upgrade from last month when they were gradually falling.
Factory output is also picking up after showing signs in January of bottoming out.
"The two factors that we are looking at to determine the path of the economy are exports and production," Fumihira Nishizaki, director of macroeconomic analysis at the Cabinet Office, told reporters.
"We've decided to include oil prices as a risk factor because they have been rising. Japan is very dependent on imports for its energy needs."
The government downgraded its view of personal consumption for the first time in three months, however, saying spending was flat as year-end bonus payments for workers at medium-sized firms fell.
Japan's gross domestic product is likely to resume growth in January-March after shrinking in the previous quarter due to a dip in consumption following the end of government subsidies for car purchases.