Japan government raises view on capex, output; economy in recovery albeit weakness

The government's monthly economic report comes days after Prime Minister Shinzo Abe's ruling coalition won snap elections, giving the premier a fresh mandate to proceed with his "Abenomics" strategy of reflationary policies.

"The Japanese economy is in a moderate recovery, while weakness can be seen in private consumption and some other areas," the Cabinet Office said in its report for December, issued on Friday.

It left the overall view unchanged for a second straight month.

The Bank of Japan offered on Friday a more upbeat view that the economy continues to recover moderately as a trend with the effect of April's sales tax hike waning as a whole.

Recent gains in industrial output have prompted the Cabinet Office to take a view that factory output is bottoming out, an official said, marking an upgrade from last month when the Cabinet Office said industrial output was declining.

Factory output unexpectedly rose for second straight month in October, suggesting firms have cut inventories of unsold goods built up after the tax hike hit consumers and led to two straight quarters of contraction through September.

The report follows the BOJ's key tankan survey that showed solid capital spending was planned by big firms in the fiscal year to March 2015. Companies have so far been slow to implement investment plans because of a murky outlook.

The Cabinet Office raised its view of business investment, saying it is largely flat after previously noting some weak spots in capital spending, although it was on a rising trend.

The Cabinet Office official expressed a cautious overall view, saying that weakness remained in the economy as a whole, including in private consumption.

The Cabinet Office described private consumption as holding firm while weakness was seen in consumer confidence which has been sliding because the weak yen drives up the cost of imports.

A tepid economic recovery challenges the plans of Abe and the BOJ to pull the world's third largest economy out of deflation and put it on a course for sustained growth led by the private sector.

Falling oil prices could be positive for corporate profits and consumers' purchasing power, but the potential effects on global financial markets warrant attention, the official added.

(Reporting by Tetsushi Kajimoto; Editing by Eric Meijer)