By Kantaro Komiya

TOKYO (Reuters – Japan raised its overall economy assessment in December for the first-time in 17 month, as companies and consumers became more optimistic about Japan’s outlook regarding falling COVID-19 incidences at home.

Officials raised their opinions on private consumption, business conditions. The services sector was supported by the removal of coronavirus restrictions but highlighted ongoing risks due to supply shortages and high raw material prices.

In the third quarter, the world’s third largest economy contracted slightly more than originally reported. Economists predict a rebound in 2021’s final quarter, after the September pandemic was over.

In its Tuesday, December economic report, the government stated: “The economy has been improving as the severe coronavirus conditions are slowly easing.”

However, the government stated that it is necessary to monitor any risks from Omicron variants of coronavirus on financial markets and economies.

For the second consecutive month, authorities raised their opinion on private consumption.

Before the cabinet approved it, a government official stated that they had upgraded their consumption assessment due to further recovery in entertainment services and sales of cars amid increased supply constraints.

After the Bank of Japan’s quarterly tankan survey, which showed that Japan’s mood in service sector was at its highest level for two years, the government updated their view of business conditions. Due to the increased number of job postings, authorities also revised their employment assessment.

First time in 13 month, the government lowered its outlook on capital expenditure. According to the official, firms’ capital expenditure, particularly on software, fell in the third quarter due to a COVID-19 revival that occurred over the summer, which hampered business meetings opportunities.

On weak housing starts, authorities also reduced their opinions on housing construction.

Assessments of other economic components such as production, prices, and inflation remained unchanged in the December report. The December report also highlighted downside risks due to supply restrictions and fluctuating raw material prices. These references were kept the same as in November’s report.

Japan’s parliament approved Monday a record-breaking $317 billion additional budget. It also included payouts for households and companies.