Japan on Friday upgraded its view of the economy for the first time in nine months, a day after better-than-expected growth figures and thanks to a pickup in exports and consumer spending.
But the Cabinet Office's monthly economic report also warned that increasing uncertainty over Europe's financial picture, a strong yen and rising oil prices may hamper a recovery for the world's third-largest economy.
"The Japanese economy is on the way to a recovery at a moderate pace," said the May report.
Tokyo on Thursday released data showing gross domestic product grew by a better-than-expected 1.0 percent in the three months to March, offering a glimmer of hope after the global downturn and last year's quake-tsunami disasters.
An uptick in consumer spending was largely due to improved wage conditions and a government subsidy for purchases of fuel-efficient cars, the report said.
Japan's economic expansion comes amid a rise in demand for its products in Asia and a slowly-recovering United States, while it was also helped by heavy reconstruction spending in the wake of the March 11 quake-tsunami.
But the report warned over a strong yen, which is edging back towards the record highs it touched against the dollar last year, making Japanese products pricier overseas, while debt turmoil ravages Europe, a key export market.
"Uncertainties over the European crisis and its impact on financial markets are increasing again, and we must be very careful about that," a ministry official said.
— Dow Jones Newswires contributed to this report —
